Yes. You always (?) get the step up in basis at death. You also get the additional $250K exemption assuming some criteria outlined in Pub 523 are met. I don't recall what they are offhand but they're reasonable.Can you get both step-up basis and the deceased's $250k exemption?As others have already correctly pointed out, the surviving spouse will get a step up in basis to value as of the date of death (perhaps on half, perhaps on all, depending on if it is a community property state or not - since you said the house is in MN it looks like there would be a half step up in basis).Hi all,
Couple questions on the capital gains exemption on sale of a home. Asking for a friend.
Current owner's spouse died a little over a year ago. Am I correct that the deceased spouse's exemption is still in place for two years and that the total exemption will be $500,000?
Fairly substantial remodeling over the years (addition, completely redone kitchen, etc). Documentation is a little sketchy. How best to address?
The owner is purchasing a new home immediately. Cost greater than sale of old home. Is there any benefit to not using the full exemption (estimate $400,000 capital gain) on sale of current home and rolling it into the new home?
Anything else we should be paying attention to? (Note - this is all planning/thinking. A CPA will be involved in documenting this on 2024 taxes).
Thanks for advice,
S
And as someone else pointed out, the surviving spouse can usually exclude $500K of gain if certain conditions are met (see Pub 523 for these).
Even if that is not possible, surviving spouse will be able to exclude $250K of gain if certain conditions are met (see Pub 523 for these).
If the gain is less than $250K or $500K (and it likely will be) just based on sales price minus purchase price, there is no need to bother with any documentation on the capital improvements, because those capital improvements just increase basis and reduce the gain. Whether the exclusion wipes out a $200K gain or a $100K gain, it's still zero. Save yourself the time and headache and the CPA the data entry (the CPA will probably notice this as well).
(Also, any capital improvements occurring before the death of the first spouse are irrelevant because of the above step up in basis.)
Cost of new home is irrelevant.
There is no way to "save" part of the exemption amount and apply it to a second home sale. The surviving spouse, however, can take the $250K exemption every two years (provided, again, that they meet the conditions in Pub 523).
The other thing to know is that certain transaction costs can also be included when calculating the gain. If the gain is just over the exclusion amount, it's usually easier just to include the realtor / agent fees associated with the sale, as those can often be enough to get the gain under the exclusion amount. This info is also in Pub 523.
If a 1099-S is issued (usually by the title / closing / escrow company - check the paperwork they give you), the surviving spouse needs to report the sale on their tax return on Form 8949 and use adjustment codes "H" or "L" as appropriate.
Somehow, that feels like double dipping. Not that I expect tax laws to make sense.
Statistics: Posted by secondcor521 — Fri May 10, 2024 9:48 pm — Replies 11 — Views 815