What is the capital gains law for a widow selling a home 3years after the death of her spouse with a 19 year old child in school?

Answer 1

The law is the same for everybody:

If you owned the house for at least two of the five years before sale and it was your principal residence for two of the five years before sale, you don't have to pay taxes on the first $250,000 of capital gains (profits). This can increase to $500,000 if you file a joint return and your spouse also lived in the house for two of the previous five years.

There is a special rule for surviving spouses: If the widow did not remarry before the house was sold, she may treat any time her late husband lived in and owned the house as time she also lived in and owned the house. Also, if the widow does not marry and sells the house within two years of the husband's death and met both the two-out-of-five-year use and ownership tests at the time of death, then the widow may exclude $500,000 instead of $250,000.

Any profits above the exclusion amount are taxed as capital gains.

One other important thing to remember: When a property owner dies, the property receives a "step-up" in basis. For purposes of determining whether you had a capital gain ("profit") on the sale of the property, the amount your paid for the property ("basis") is considered to be its fair market value on the day the owner died (or alternate valuation date chosen by the executor of the estate). In a community property state, the whole property receives a step-up in basis if it is owned only by the husband and wife.

If the estate filed an estate tax return (Form 706), this value should be listed on the estate tax return. If not, you need to get an appraisal of the value of the house as of the date of death. If you didn't get one, contact an appraiser and ask for a retroactive appraisal.