LJane29
Employee Tax Expert

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First, I am sorry for you loss, sounds like it was a rough time.  The rule is that you have to have lived in the house 2 of the last 5 years.  So even if you owned the house for 25 months then as long as you lived in it for 24 months then you qualify for the exclusion.  The tricky part for you is that you only qualify for $250,000 exemption (you would have had to sold it while you were filing jointly with your husband to get the full $500,000) but you do get a "step up" in basis (see my example below).

 

Bought house in 2018 for $100,000

Husband passed in 2019 and the house was now worth $140,000

Your new basis in the house is your original 50% ($50,000) plus the stepped up value of 50% of your late husband (50% of $140,000 = $70,000) so a total of $!20,000

**this is the general rule and may be different depending on the state you live in

That should help offset the gain which is figured this way:

House sold in 2022 for $$360,000

Less your basis of $120,000

Gain of $240,000

amount allowed as an exemption to gain is $250,000 which is more than your gain so no tax

 

Note that you will want to report the sale on your tax return in order to clarify to the IRS that there is no gain on the sale that is taxable.

 

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