Important Tax Exemption on Your House

Congress passed its final tax bill of last year and gave homeowners a boost when selling their homes after the death of a spouse. Can it be that they're getting older so it was an extra incentive for them? At any rate, it's probably not news to you that you get a $500,000 exclusion when selling your home if you're married and $250,000 if you're single. You must have lived in the property as your primary residence for a cumulative two of the preceeding five years.

But what happens to a married home owner if the spouse dies? Formerly you'd only get a $500,000 exclusion if you sold the home in the same calendar year of the spouse's death. That puts a huge physical and emotional burden on the surviving spouse, especially if the death of the spouse happened late in the year.

In other words, if a spouse died in October, the surviving spouse would have to sell the house by December 31 of the same year to claim $500,000. Terrible law. If they couldn't do it, the survivor could only claim $250,000.

However, that's been changed. Legislation went into effect late last year that gives the surviving spouse up to two full years to qualify for the $500,000 exclusion - even though at that time they are technically single.

The bill is H.R.3648. The capital gains change is in Section 7.

If you're working with the elderly or a real estate agent, make sure they know about this. It could make a huge difference and everyone should know about it.