Sale of house by widow

I'd have to double check but my instincts tell me she gets the $500K. If she waited and sold in 2006 she would only get the $250K. I believe that the key is that the house is sold as part of a JOINT return. Good luck, Gene E. Utterback, EA, RFC

I would of course love to agree with you, Gene. But what I think puts the kabosh on it is the fact he died first, and then she sells the house which only she now owns. I would go for stepped up basis and then compute the gain to see if under 250, which it probably is. ChEAr$, Harlan Lunsford, EA n LA

I think the issue is, what controls whether or not the $500K is available, rather than $250K? If it's the filing status on the return, where $500K is available on MFJ, then that should apply here. Consider a couple who each own a house when they marry. One sells his house; the entire $500K is available on the MFJ return, even though the house was separate property. (Does that apply even if the house was sold just prior to the marriage?) Seth

I understand what you're saying, but I think that since he was dead when the home was sold, means his 250 exclusion died with him. In the absence of a court case to the contrary, that's the way I would treat that part of the issue. (not talking about stepped up basis here.) ChEAr$, Harlan Lunsford, EA

I generally agree, but one point which might change the answer: I note that he died in May and the house was sold in July. Around here, escrow takes 60-90 days. If he actually signed the escrow paperwork, then he might still be considered as having sold the property and thus his $250 exclusion may apply. [I.e. he "sold" the property even if transfer of title wasn't recorded until after his death.]

When he died is irrelevant. The statute simply says the $500,000 exclusion is available for a joint return, which is available in the year of death. The Tax Court applies the literal language of the Code, so the Service would have absolutely no basis for countering the simple language of §121(b)(2)(A). In addition, simply living in a community property state may not be enough to provide a dual stepped up basis. In California, for example, title officers routinely draft grant deeds for married couples as joint tenants, when the form of holding should be community property with right of survivorship (CPWROS). As a result, many widows and widowers are not even eligible for a 100% step up in basis. The joint tenancy creates a rebuttable presumption which is difficult to overcome absent a clear showing of mutual intent that the property be community in nature. (See Bordenave v. United States, 150 F. Supp. 820-ND Cal 1957) Tim