@memorris7 wrote:
thanks for the exact answer, just what I was looking for. Hard when a spouse is lost suddenly, to ask the surviving spouse to think about selling the only home they have ever lived in to avoid a large tax bill on capital gains. But their financial situation requires they take this into consideration.
That is probably not the only answer. First, remember the stepped-up basis. Second, if the spouse wants and is able to keep living in the house, the house can be placed in an asset protection trust, and if the house passes to their children after they die, they get a fully stepped up basis and owe no tax on sale. Third, the spouse still needs someplace to live, and if you think about rent, or a new mortgage, it may not actually make financial sense to force them out of their current house just to save 15% cap gains tax on half the gain minus $250,000. Lastly, the house is an investment--not diversified or very liquid, but it does count as an investment. If they sold, where would they put their money and would it earn more and be as safe as the house?
I think you should discuss this with a certified financial planner, or if the person is over 65, a financial planner or law firm that specializes in Elder law and financial planning. Don't make your decision just based on one assumption and one calculation.
