Home sale capital gains question

[JP.mpls]

I've read that my home must be my primary residence two of the last five years to write off ($250k single/$500k married) capital gains for the sale of my home.

A question:
If I've lived in the home for over 35 years, but it is no longer my primary residence for two of the last five years, am I no longer eligible for this write off?

In other words, do they somehow take those 35 years of residency into account?

I was also married for most of those years, but I'm single/widowed now. Does the additional marriage write off level ($500k) get grandfathered in?

Note: It has never been a rental property during my ownership, but it is no longer my primary residency.

Thanks for your comments.

JP

 

[SecondCor521]

I've read that my home must be my primary residence two of the last five years to write off ($250k single/$500k married) capital gains for the sale of my home.

Yes, that's generally true. There are additional requirements, most notably that you also owned the home for two of the last five years, and that you haven't used the exclusion in the last two years.

A question:
If I've lived in the home for over 35 years, but it is no longer my primary residence for two of the last five years, am I no longer eligible for this write off?

In other words, do they somehow take those 35 years of residency into account?

Generally not. There are exceptions depending on the reason for the sale that may entitle you to a partial exclusion.

I was also married for most of those years, but I'm single/widowed now. Does the additional marriage write off level ($500k) get grandfathered in?

Depending on the circumstances, possibly. See "Widowed taxpayers" on page 4 of IRS Pub 523 at https://www.irs.gov/pub/irs-pdf/p523.pdf.

That publication also explains most of the other rules about selling a home.

Note: It has never been a rental property during my ownership, but it is no longer my primary residency.

Thanks for your comments.

JP

The other thing that complicates the situation is whether it was ever used for a business (specifically because of the home office deduction).

Also, whether or not you qualify for a full or partial exclusion of the gain, you can also adjust both the cost basis and the proceeds by considering permanent improvements, and some transaction related costs. Again, see Pub 523 for details.

 

[JP.mpls]

Thanks Secondcor.
I will read that tax document.

Never a business or rental. I still own this home, and it was my permanent residency until this year.

I'm trying to confirm that I have to sell it within three years to get this write off.

JP

 

[SecondCor521]

Thanks Secondcor.
I will read that tax document.

Never a business or rental. I still own this home, and it was my permanent residency until this year.

I'm trying to confirm that I have to sell it within three years to get this write off.

JP

On the "years" thing, note that it is generally the five year period ending on the sale date that matters. So it's tied to when you sell the house, not necessarily (and not usually) calendar years or tax years.

 

[Buckeye]

I've read that my home must be my primary residence two of the last five years to write off ($250k single/$500k married) capital gains for the sale of my home.

A question:
If I've lived in the home for over 35 years, but it is no longer my primary residence for two of the last five years, am I no longer eligible for this write off?

In other words, do they somehow take those 35 years of residency into account?

I was also married for most of those years, but I'm single/widowed now. Does the additional marriage write off level ($500k) get grandfathered in?

Note: It has never been a rental property during my ownership, but it is no longer my primary residency.

Thanks for your comments.

JP

I believe that one half of the basis stepped up to market value the day your spouse passed. With a larger basis, less capital gains.

 

[Montecfo]

I've read that my home must be my primary residence two of the last five years to write off ($250k single/$500k married) capital gains for the sale of my home.

A question:
If I've lived in the home for over 35 years, but it is no longer my primary residence for two of the last five years, am I no longer eligible for this write off?

In other words, do they somehow take those 35 years of residency into account?

I was also married for most of those years, but I'm single/widowed now. Does the additional marriage write off level ($500k) get grandfathered in?

Note: It has never been a rental property during my ownership, but it is no longer my primary residency.

Thanks for your comments.

JP

The 35 years do not buy you anything except some good appreciation I would bet.

Unless you will be filing a joint return, the exclusion will be at the "single" level.

But fails without the use test (2 of 5 years as primary residence).

Any chance this can become your primary residence once again?

ETA: I now see you are trying to determine your window for sale. Good.

 

[Montecfo]

I believe that one half of the basis stepped up to market value the day your spouse passed. With a larger basis, less capital gains.

yes, if she owned it. And the entire basis step-up in a community property state.

 

[pb4uski]

The principal requirement is that it was your principal residence for 2 of the last 5 years, but there are other requirements.

If it was your principal residence until this year... IOW, through end of 2021... then I think you would have until the end of 2024 to sell and still get the exemption.

 

[cathy63]

I believe that one half of the basis stepped up to market value the day your spouse passed. With a larger basis, less capital gains.

Right. Assuming you owned the home jointly with your spouse and it's located in Minnesota (not a community property state), then you got a step-up in basis on half the property on the date your spouse passed. It's important to establish the value of the property on that date, and it will be easier if you do it sooner rather than later. There's some historical info on Zillow, or you can consult a local real estate agent or appraiser for help.

You can still use the full $500K exclusion for widowed taxpayers if you sell within 2 years of your spouse's death, even after the step-up in basis. So for example, if your home had a basis of $750K including improvements prior to your spouse's death and was worth $1.25M at that time and is now worth $1.5M, then your new basis is .5*$750K + .5*$1.25M = $1M. If you sell within 2 years and have not remarried, you can use the full $500K exclusion, so you'd have $0 taxable cap gains on the sale.