Anonymous asked in Business & FinanceTaxesUnited States · 1 month ago

Can you answer the below question about capital gains taxes on a house?

Say a married couple buys a house in the 60's for $20k. The man passes away in 2019. The house is worth about $550k now. So his half is stepped up to $275k and his wife doesn't pay any taxes on the increase. She sells and after fees, etc. takes in $520k. So her capital gains tax would be 520 - (275 + 10) = 230 and then minus 250k for the exclusion, so she owes no capital gains tax? She has lived in the house for decades and not sold any other houses or generated any capital gains taxes.  Thanks for help.

2 Answers

  • Anonymous
    1 month ago

    It depends on the state.  ONLY in a community property state is the entire property stepped up.  In all other states, it's one-half.  A HUNCH's answer is wrong in most places.

    From IRS publication 551.

    Community Property

    In community property states (Arizona, California, Idaho, Louisiana, Nevada, New Mexico, Texas, Washington, and Wisconsin), married individuals are each usually considered to own half the community property. When either spouse dies, the total value of the community property, even the part belonging to the surviving spouse, generally becomes the basis of the entire property. For this rule to apply, at least half the value of the community property inter-est must be includible in the decedent's gross estate, whether or not the estate must file a re-turn.

    For example, you and your spouse owned community property that had a basis of $80,000. When your spouse died, half the FMV of the community interest was includible in your spouse's estate. The FMV of the community in-terest was $100,000. The basis of your half of the property after the death of your spouse is $50,000 (half of the $100,000 FMV). The basis of the other half to your spouse's heirs is also $50,000.

    For more information on community prop-erty, see Pub. 555, Community Property.

    Property Held by Surviving Tenant

    See the publication.

    Tenants by the entirety.

    Joint tenants with right of survivorship if the married couple are the only joint tenants.

    Basis. As the surviving spouse, your basis in property you owned with your spouse as a qualified joint interest is the cost of YOUR HALF of the property with certain adjustments. Decrease the cost by any deductions allowed to you for depreciation and depletion. Increase the reduced cost by your basis in the half you inherited.

  • 1 month ago

    Federal law:

    If the house is community assets (joint ownership), the full property gets the stepped up tax basis.

    If the house was worth $550K on date of spouse's death, that is the full stepped up tax basis.

    If the profit from the sale was $520K, there is no capital gains owned. 

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