Sale of Home by Surviving Spouse

April’s husband Jay died 5 years ago when their home was worth $600,000. Due to the soft real estate market, April kept the house until the housing market recovered. She finally sold the home this year for $950,000. What is the amount of April’s taxable gain or loss if she bought the home jointly with Jay 20 years ago for $200,000? Assume April lives in a common law state.

$0
$100,000
$300,000
$350,000

CLICK TO REVEAL ANSWER

C is the answer. Surviving spouses can exclude up to $500,000 on the sale of a residence where the surviving spouse lived with the deceased spouse provided the home is sold within 2 years of death. April only qualifies for the $250,000 exclusion since it has been 5 years since Jay died. April’s basis was stepped up at Jay’s death to $400,000 ($100,000 (her 50% original basis) + $300,000 (the value reported in Jay’s estate)). April must report a $300,000 gain ($950,000 - $400,000 (basis) - $250,000 (exclusion)).

Posted in CFP® Practice Question

About Dan Madden, CFP®

View all posts by Dan Madden, CFP® →