Personal Residence Exclusion

Today TaxMama hears from Nony in California who wants to know. “My parents recently moved to a retirement community and were preparing their house for sale. Mom just died – the house was not yet on the market. Does Dad still get the $500K capital gains exemption or only $250K since Mom died before the house sold. Her name is still on the deed since her death was just a few days ago.”

TaxMama answers a question on Tax

Dear Nony,

Oh, that’s so sad. That same thing happened to my friends several years ago. Just when they were able to retire and have fun!

Oh well. If there’s any way that you can sell the house this year, Dad will get the full $500,000 personal residence exclusion on their final joint tax return.

However, no need to rush. California is a community property state. Odds are that the whole house got a stepped-up basis on the day your mother died. That means, that for tax purposes, the cost basis of the house is the fair market value on that day. So, even if Dad sells it next year, there probably won’t be any gain.

If there is, his own $250,000 personal residence exclusion will absorb it.

And remember, you can find answers to all kinds of questions about death-related tax matters and other tax issues, free. Where? Where else? At TaxMama.com.

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