My sister-in-law just listed her primary residence. She will have been widowed two years in mid-February. I am unsure of the exact basis of the home, but I do feel she is going to have a gain greater than $250k. Probably close to $325k or so if I were guessing. I believe she can exclude $500k of gain up until the second anniversary of her husband’s death, but after that only $250k will be excluded, so she will owe capital gains tax on any excess above a $250k gain. I am certain she has no idea about this.
Should I mention this to her? I mean, I would hate for her to set a closing date on February 20th if setting it a couple of days earlier could save her over $10-11k on her taxes. I did remind my husband of her exemption amount changing after her husband has been gone over two years. They are not super close and don’t really talk often.
I mean, it’s none of my business, and she hasn’t asked for any advice.
How do you handle offering this type of advice? It’s not just advice that is a matter of opinion -it’s factual advice. As an aside, I’ve always wondered what dermatologists do when they are out and about and see suspicious looking spots on folks.
I might find an article that outlines what you just described and then forward it to her with a note:
“I just stumbled across this article and thought of you. I thought the two-year rule might be relevant to your house sale. You may know all about it, but thought I would forward it just in case. Hope all is going well!”
You may also advise her to check with a professional (CPA or attorney) to insure she understands all of the ramifications of the house sale – including the timing of the sale.
Agree with others. This is not you offering an opinion on paint colors or furniture. I’d just say what others said. “Not sure if you were aware of not, but I saw this article and thought it might be useful.” I’ve done similar things before. It’s not that you are trying to pry. You are conveying potentially valuable information.
At worst, you are ignored. At best, you get a thank you. The most unlikely outcome is that your information somehow causes offense.
Please share this basic accounting information with your sister-in-law IF you are okay with any blowback from hastening a sale for less than she might reasonably get if she waits for a fair offer.
Since she has put her home up for sale in November, she should generate a fair offer within 60 days. Your focus on the closing date appears to be sound guidance.
I agree that she’d be appreciative, and the “thought of you when I saw this article” approach is ideal. If you don’t have an article, I’d just ask in the context of “how’s the sale process going?”, “are you trying to manage the closing date to take advantage of the tax exemption?”
If you asked me the latter, my answer would be “what’s that?” Most of us attain this kind of knowledge through precisely this kind of situation, not by seeking it out just in case. Personally, I think there can be quite a bit of serendipity in whether someone gets good information in many situations. It’s knowing to ask, what to ask, who to ask, and what to believe. The first part is the easiest to miss, so luckily, here you are!.
If there’s a dynamic between you that makes you worry about coming across as a know-it-all, either of the above shows dodge that. But it seems like the right thing is to make sure she knows. What she does with that info isn’t your problem…
I think I will just text her and ask her if she has discussed the exemption amount on the sale of a primary residence with her tax preparer. And, then take it from there.
It’s possible that the half of the house owned by the deceased spouse also qualifies for a step up in cost basis to the value on the date of death. In that case her gain would be less. Definitely worth checking with a tax accountant.
Aside: Is there any way around this rule? Seems so unfair that a widow or widower MUST sell withing 2 years, or potentially be stuck with a huge tax burden. Many older adults (including us), have lived in their home a long time, and would love to remain in their home if possible. But living there a long time, typically comes with a significant increase in value, especially in the recent market. Forcing to sell in 2 years or bear a huge tax penalty, just seems like a cruel punishment after losing a spouse.
Yes, that is correct as well. Not exactly sure how she would go about establishing that amount however?? She didn’t have an appraisal done when he died. Perhaps somehow tie back into tax assessments. Idk.
And any capital improvements get added to the basis- most people forget to keep records of a bathroom renovation, adding a deck, etc. all of which would reduce the tax liability…
I did speak with her today. She doesn’t even have good records on the building of the house
She and her husband bought the land, and my (also deceased) father-in-law served as general contractor on the construction. He had worked for a building supply company and got lots of, “deals,” for them I think. He actually held the note on the house. I don’t know what their arrangment was about purchasing materials and paying subs. The best scenario would be that fil just did all of that and rolled it into their note to him. That is an amount she would at least know.
She does have records of at least some capital improvements they have made.
If she can get a closing before the anniversary of his death, it’s all a moot point. If she can’t, she needs to be able to get that basis up as much as she can reasonably document.
See what the local building inspections office might have. When we bought our 1910 house, I pulled the inspection file that had all the permits dating back to the 50s.
Also the real estate office might have some records about reassessment and when improvements were noted.
Or does she need what she paid for those improvements? That would be tougher.
“customary and usual” cost estimates are probably fine (although she should verify her numbers and the source with the attorney handling the estate). Adding a bathroom (for example) and estimating $20K in labor, materials, etc. is probably fine on a 200K house. Claiming a 100K bathroom on that same 200K house is probably an eyebrow raiser…
Honestly, she can pull together info for all the improvements, I think. But, there really weren’t many - pool, cover over back deck (I KNOW a permit wasn’t pulled for this), and windows replaced. No remodeling of kitchens or baths at all. I guess she has also had new carpet installed
