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smac1951
Level 2

How to calculate house sale additional exclusion from gain if spouse died more then 10 years ago using turbo tax?

 I started working on my Mom’s taxes for 2016. She sold her home last year(2016), which my Mom and Dad bought back in 1961. Very large gain from the sale of the house. My Dad died back in 1993. I’m using turbo-tax and I get to the section under house sale “additional exclusion for widow”. It says “you may be able to exclude more gain of the sale of your house if your spouse passed away within two years before you sold your home”. My question is what if your spouse died back in 1993 should’t there be away to calculate the additional exclusion for the 32 years my Dad lived in the house? When the house sold back in September I consulted with a lawyer about this and he said it can be done but seems like turbo-tax does not allow anything except within a two year period on the sale of the home and I really don’t want to go back and pay big fees to the lawyer for doing the taxes.

1 Best answer

Accepted Solutions
TaxGuyBill
Level 9

How to calculate house sale additional exclusion from gain if spouse died more then 10 years ago using turbo tax?

Your dad's half gets a 'step up' in value for his 50% ownership on the date of his death.  It is best explained by example.

Let's say the original cost of the house was $100,000, and the Fair Market Value on the date of his death in 1993 was $300,000.

That means your mom's original cost for her half was $50,000, and so was your dad's.

When your dad died, his half ($50,000) is increased to 50% of the Fair Market Value.($150,000).

So the total 'cost' of the house is this:

  1. 50% of the purchase price (your mom's half), plus
  2. 50% of the cost of improvements (remodeling, roof, furnace, etc.) between 1961 and 1993 that were not eventually replaced with another improvement (your mom's half), plus
  3. 50% of the Fair Market Value on the date of death in 1993 (your dad's half), plus
  4. 100% of the cost of the improvements (remodeling, roof, furnace, etc.) after the date of death in 1993 that were not eventually replaced with another improvement.

Does that make sense?

View solution in original post

7 Replies
TaxGuyBill
Level 9

How to calculate house sale additional exclusion from gain if spouse died more then 10 years ago using turbo tax?

No, there is not an "exclusion" for him.  However, there is a provision for him, but how it applies depends on where they lived.  What State did they live?
smac1951
Level 2

How to calculate house sale additional exclusion from gain if spouse died more then 10 years ago using turbo tax?

Massachusetts
TaxGuyBill
Level 9

How to calculate house sale additional exclusion from gain if spouse died more then 10 years ago using turbo tax?

Your dad's half gets a 'step up' in value for his 50% ownership on the date of his death.  It is best explained by example.

Let's say the original cost of the house was $100,000, and the Fair Market Value on the date of his death in 1993 was $300,000.

That means your mom's original cost for her half was $50,000, and so was your dad's.

When your dad died, his half ($50,000) is increased to 50% of the Fair Market Value.($150,000).

So the total 'cost' of the house is this:

  1. 50% of the purchase price (your mom's half), plus
  2. 50% of the cost of improvements (remodeling, roof, furnace, etc.) between 1961 and 1993 that were not eventually replaced with another improvement (your mom's half), plus
  3. 50% of the Fair Market Value on the date of death in 1993 (your dad's half), plus
  4. 100% of the cost of the improvements (remodeling, roof, furnace, etc.) after the date of death in 1993 that were not eventually replaced with another improvement.

Does that make sense?
smac1951
Level 2

How to calculate house sale additional exclusion from gain if spouse died more then 10 years ago using turbo tax?

Ok, I'm able to follow what you are saying. What I am having a difficult time with is going thru the easy guide in Turbo-Tax and how I add the 50% FMV for 1993 for my Dad's half. I see how to add the the improvement cost in Turbo-Tax.
smac1951
Level 2

How to calculate house sale additional exclusion from gain if spouse died more then 10 years ago using turbo tax?

Upon further looking at turbo tax I found the place to include the 50% FMV for my Dad's half. It is under the "Adjusted Cost Basis EasyGuide". Under the example they don't have surviving spouse. Probably should have included it. I also got a copy of IRS publication 523 and on page 13 at the bottom it describes the explanation you provided above. Thanks
NonnaK
New Member

How to calculate house sale additional exclusion from gain if spouse died more then 10 years ago using turbo tax?

It's my understanding that (in CA) if you hold the title as joint tenants with right of survivorship the stepped-up basis is not subject to the 50% rule.  However, I am entitled to a $250,000 exclusion on top of the basis but I can't find where to enter it.  The program is telling me that I am not eligible for the exclusion.  And when I went to the forms I found all the questions were filled out wrong.  I  fixed them but I still can't figure out why I don't get the $250K that I am entitled to.

KrisD15
Employee Tax Expert

How to calculate house sale additional exclusion from gain if spouse died more then 10 years ago using turbo tax?

Did you live at least 2 of the last 5 years in the home?

The requirements are determined by the answers you give during the interview. 

 

Have you taken the exclusion on another house within the last  2 years?  

 

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