Personal Residence Exclusion

2009-11-04 by

Today TaxMama hears from Nony in California who wants to know. “My parents recently moved to a retirement community and were preparing their house for sale. Mom just died – the house was not yet on the market. Does Dad still get the $500K capital gains exemption or only $250K since Mom died before the house sold. Her name is still on the deed since her death was just a few days ago.”

Dear Nony,

Oh, that’s so sad. That same thing happened to my friends several years ago. Just when they were able to retire and have fun!

Oh well. If there’s any way that you can sell the house this year, Dad will get the full $500,000 personal residence exclusion on their final joint tax return.

However, no need to rush. California is a community property state. Odds are that the whole house got a stepped-up basis on the day your mother died. That means, that for tax purposes, the cost basis of the house is the fair market value on that day. So, even if Dad sells it next year, there probably won’t be any gain.

If there is, his own $250,000 personal residence exclusion will absorb it.

And remember, you can find answers to all kinds of questions about death-related tax matters and other tax issues, free. Where? Where else? At TaxMama.com.

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IRS Publication 523
Sale of home after death of spouse

# | Posted in Tax Quips | Comments » (2)



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  1. Doug Says:
    November 04th, 2009 at 07:08 am

    A surviving spouse actually gets a full 2 years following the date of death to sell the house and utilize the full $500,000 exclusion as long as they were both qualified for it at the date of death and the surviving spouse has not remarried. (IRC Sec. 121(b)(4)) But as you say, the step up in basis rules likely makes this unneeded, even in non community property states.

  2. Alannah Kern Says:
    November 04th, 2009 at 10:12 am

    Dear TaxMama,

    My understanding of California Real Estate Law is that you only get a stepped up basis of the whole house if you have taken title as Community Property with the right of the survivor (not if you took title as "in the community"). If you took title as Joint Tenants you would only get a 50 percent step up basis. That is why the method of taking title is so important. It affects your tax position. Please check with a real estate attorney or CPA to confirm.

    Respectfully,

    Alannah Kern, Sales Agent

    RE/MAX Real Estate Consultants

    74-199 El Paseo Suite 101

    Palm Desert, CA 92260

    Cell:760.333.6566

    Email: alannahrayne@yahoo.com

    License: 01309193

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