Capital Gains: Uncle Sam gives survivors a break

April 4, 2008

A new law allows the surviving spouse to exclude up to $500,000 of the gain of the couple's home if the sale is completed within two years of the date of death.

Losing a spouse is hard enough. Losing out on $250,000 because of a loved one's death is adding insult to injury.

Under prior tax law, a surviving spouse who was selling the couple's home could exclude up to $500,000 of the gain only if the sale was completed by the end of the year in which the spouse died and a joint return was filed for that year. Otherwise, the maximum exemption shrunk to $250,000-the limit for unmarried persons. Naturally, few sales were completed by the deadline when a spouse died late in the year. Uncle Sam has eased up, however: The new law allows the surviving spouse to exclude up to $500,000 of the gain if the sale is completed within two years of the date of death.