If you’re a surviving spouse, you can qualify for the $500,000 joint-filer home-sale gain exclusion if you file a joint return for the year of your spouse’s death and sell your home in that year. But this rule gives you precious little time to make plans during an emotionally charged time.
Strategy: Put the old homestead up for sale. Thanks to a tax law enacted late in 2007, a surviving spouse can claim the $500,000 home-sale exclusion for sales occurring within two years of the spouse’s death, even though filing a joint return is not allowed.
Example: If your spouse passed away on Jan. 1, 2007, you have until Dec. 31, 2008, to complete a sale qualifying for the home-sale exclusion. Under prior law, the exclusion would not have been available for a 2008 sale.
Tip: Your basis in the home is stepped up to reflect your deceased spouse’s half share.