Single person entitled to $500k home sale gain- ?

[TAXNJ]

Agree or disagree with the following two items based on scenario below?

1. If home sale gain was $390k (as long as gain is below $500k) – it is excluded (KEY HERE SEEMS TO BE TWO YEARS AFTER DATE OF DEATH) (ref TB pg 6-19 (For sales or exchanges after December 31, 2008, the $500,000 exclusion will apply to unmarried individuals whose spouse is deceased on the date of sale provided that the sale occurs not later than two years after the date of death of the deceased spouse, and the couple would have qualified for the $500,000 exclusion if the sale had occurred immediately before the date of death.

2. 2008 Surviving spouse – gets ½ of “stepped up basis” of house – FMV on date of death (ref TB pg 21-34 - Stepped-up basis applies even if the decedent’s estate is not required to file Form 706

SCENARIO:

• Elderly couple bought home for $10k and owned as personal residence home 50+ years and did not ever own any other home

• 2008 spouse died – no estate tax due

• 2009 - Surviving spouse sold home for $400k

• Surviving spouse had a reverse mortgage on the home and paid the “principal & interest” owed
• Surviving spouse did not remarry

Thanks in advance

[MLINDER42]

500,000 exclusion

It really does not matter surviving spouse received step up value on half the house so his basis is 210,000 his profit is only $190,000.He is under the $250,000 exclusion.

[BOB W]

Agree or disagree with the following two items based on scenario below?

1. If home sale gain was $390k (as long as gain is below $500k) – it is excluded (KEY HERE SEEMS TO BE TWO YEARS AFTER DATE OF DEATH) (ref TB pg 6-19 (For sales or exchanges after December 31, 2008, the $500,000 exclusion will apply to unmarried individuals whose spouse is deceased on the date of sale provided that the sale occurs not later than two years after the date of death of the deceased spouse, and the couple would have qualified for the $500,000 exclusion if the sale had occurred immediately before the date of death.

2. 2008 Surviving spouse – gets ½ of “stepped up basis” of house – FMV on date of death (ref TB pg 21-34 - Stepped-up basis applies even if the decedent’s estate is not required to file Form 706

SCENARIO:

• Elderly couple bought home for $10k and owned as personal residence home 50+ years and did not ever own any other home

• 2008 spouse died – no estate tax due

• 2009 - Surviving spouse sold home for $400k

• Surviving spouse had a reverse mortgage on the home and paid the “principal & interest” owed
• Surviving spouse did not remarry

Thanks in advance

Not that matters, but are you saying that over the ownership period there were no improvements to the property?

[TAXNJ]

No improvements - but what do you think

No improvements - but what do you think of the "two year" rule ?

[TAXNJ]

“stepped up basis” of house – FMV on date of death

Since the spouse died a year before the sale of the home, I think what the amount the FMV on date of death, the Surviving spouse – gets ½ of “stepped up basis” of that amount –

That is why the two year rule may be applicable. Would you agree with that scenario?

thanks

[David1980]

Seems right. Straight from Sch D instructions:

"If your spouse died before the sale or exchange, you can exclude up to $500,000 of gain if:
The sale or exchange is no later than 2 years after your spouse's death,
Just before your spouse's death, both spouses met the use requirement of Test 1, at least one spouse met the ownership requirement of Test 1, and both spouses met Test 2, and
You did not remarry before the sale or exchange."

Test 1 is the owning/using the home for 2 of 5 years, test 2 is you didn't exclude gain on another main home in the prior 2-year period.

[TAXNJ]

Thanks - meets all tests

Interesting Scenario because if:

+ The two year tests when met gives the benefit of the $500k exclusion

If not, the "stepped up basis" may provide a benefit for the lower $250k exclusion (for
those that purchased their personal residence many years ago which today is
considered a very low price e.g. $10 to 15k)