Sale of primary residence within 2 years of death of co-owner spouse

[eerickso1464]

Turbotax is telling me that my exclusion is only $250K instead of $500K. My husband died at the end of 2020. Also, should I not be able to use the stepped up value in the cost basis? The software is asking nothing about improvements to the home either, only about closing costs.

[MaryK4 · Accepted solution]

You would enter any improvements under Adjusted Cost Basis.  You would be able to include your step up in basis here as well.  There is an Easy Guide button that can take you step b step through the adjustments.  If you continue through the TurboTax interview, you will see "Additional Exclusion for Widow(er)s where you can enter your spouse's date of death to correct your exclusion.

[eerickso1464]

Thank you for your response. The problem I ran into was that it was asking about the sale in the section on my business since I had been deducting for a home office. In that section it does not have any questions about widow status or living in the house two years prior or capital improvements, stepped up basis, etc. I finally went into the forms and entered the information manually.

[Mike9241]

sorry for your loss. yes you should be entitled to a $500,000 exclusion if

either of you owned the house for 2 years out of 5 years before the spouse died and 

both spouses used the home as their main residence for two years out of 5 years before the spouse died and

neither spouse used the exclusion for the past two years.  this assumes you have not remarried before sale. 

what you haven't provided is who owned the house and whether you live in a community property state.

however if you live in a community property state the IRS says this

Community property. In community property states (including Arizona, California, Idaho, Louisiana, Nevada,
New Mexico, Texas, Washington, and Wisconsin), each spouse is usually considered to own half of the community property. When either spouse dies, the total fair market value of the community property becomes the basis of the entire property, including the part belonging to the surviving spouse. For this rule to apply, at least half the value of the community property interest must be includible in the decedent's gross estate, whether or not the estate must file a return.

so if this is the case your basis is the total FMV of the house + any improvements made after he died. however, since he took the home office deduction, the depreciation taken is not eligible for exclusion.

in a non-community property state, only his % ownership would get a stepped-up basis 

so your total basis would be his stepped-up basis + your basis in the original purchase + your % ownership in any improvements made before he died + all improvements made after he died

and again the home office depreciation would be subject to recapture.

if you enter something directly in a form, you will no longer be able to e-file.

[eerickso1464 · Accepted solution]

Thank you. The house was in Florida and I have not remarried. We both lived in the house for eight years prior to the sale. We both owned the property jointly. I only stepped up half of the value as of my husband‘s death.

[eerickso1464]

FWIF, I had to enter information into forms directly last year in order to get TurboTax to correctly file my taxes and it did not prevent me from e-filing.

[eerickso1464]

So, just to be clear, in the business portion of the software, which it walks you through prior to anything else, there is no facility for putting in stepped up cost basis or widow status. So in that section it incorrectly calculates the exemption. It is not until later in the software, when you can properly address the sale of your primary residence, that it does allow for these factors to be considered. The software really needs to be fixed.

[VeroGuy]

TY 2202 Turbotax does not respond correctly to "Additional Exclusion for Widow(er)s" for situations when $500K exclusion should result.  I have tried all combinations to the qualifying questions presented and NONE give the full exclusion.  Your answers to this issue for past versions don't seem to work for this new version

[BillM223]

"I have tried all combinations to the qualifying questions presented and NONE give the full exclusion. "

What were the combinations that you tried that failed to give the full exclusion? Also, on what date did your spouse pass? And what were the other factors, such as sales price, basis, etc.?

We will need to reproduce this to be able to help you out.

@VeroGuy