When he died is irrelevant. The statute simply says the
$500,000 exclusion is available for a joint return, which is
available in the year of death. The Tax Court applies the
literal language of the Code, so the Service would have
absolutely no basis for countering the simple language of
=A7121(b)(2)(A).

In addition, simply living in a community property state may
not be enough to provide a dual stepped up basis. In
California, for example, title officers routinely draft
grant deeds for married couples as joint tenants, when the
form of holding should be community property with right of
survivorship (CPWROS). As a result, many widows and widowers
are not even eligible for a 100% step up in basis. The joint
tenancy creates a rebuttable presumption which is difficult
to overcome absent a clear showing of mutual intent that the
property be community in nature. (See Bordenave v. United
States, 150 F. Supp. 820-ND Cal 1957)

Tim

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- quote -

I generally agree, but one point which might change the
answer: I note that he died in May and the house was sold
in July. Around here, escrow takes 60-90 days. If he
actually signed the escrow paperwork, then he might still be
considered as having sold the property and thus his $250
exclusion may apply. [I.e. he "sold" the property even if
transfer of title wasn't recorded until after his death.]

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avdm[at]heritagehunt.org wrote:

- quote -

I understand your question of course, but would like to know
the numbers here. For what did the house sell for, and
how much is the gain?

ChEAr$,
Harlan Lunsford, EA n LA

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- quote -

I understand what you're saying, but I think that since he
was dead when the home was sold, means his 250 exclusion
died with him.

In the absence of a court case to the contrary, that's the
way I would treat that part of the issue. (not talking
about stepped up basis here.)

ChEAr$,
Harlan Lunsford, EA

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- quote -

I think the issue is, what controls whether or not the $500K
is available, rather than $250K? If it's the filing status
on the return, where $500K is available on MFJ, then that
should apply here.

Consider a couple who each own a house when they marry. One
sells his house; the entire $500K is available on the MFJ
return, even though the house was separate property. (Does
that apply even if the house was sold just prior to the
marriage?)

Seth

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eagent wrote:
- quote -

I would of course love to agree with you, Gene. But what I
think puts the kabosh on it is the fact he died first, and
then she sells the house which only she now owns. I would
go for stepped up basis and then compute the gain to see if
under 250, which it probably is.

ChEAr$,
Harlan Lunsford, EA n LA

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"joetaxpayer" <joetaxpayer[at]nospam.com> wrote:
- quote -

No. As has been correctly reported by others, she gets the
basis adjustment AND the full $500K exemption if she sells
in the year of her husband's death.

Ira Smilovitz

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joetaxpayer wrote:
- quote -

I disagree. Since the house is sold in the year of death AND
she files a joint return, she gets to use the $500,000
exclusion. As well as the basis adjustment for the husband's
half.

- quote -

Actually, gets better.

- quote -

I agree that the "before death" sale would have resulted in
a $500K taxable gain, but that is moot now. With the
$500,000 exclusion she is up $1M AND has no taxable gain on
the sale.

If they lived in a community property state, the basis of
the property would be 100% of the DOD value, resulting in no
gain on sale. Use of the exclusion would be unnecessary.

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Wayne <avdm[at]heritagehunt.org> wrote:

- quote -

I would say the $500,000 exemption - MFJ=$500,000

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She gets a full step-up if it's a Community Properetry
State, however, filing MFJ in year of death she gets the
full $500K exemption even though she doesn't need it. Next
year as S or QW she only gets $250K.

ed.

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<avdm[at]heritagehunt.org> wrote:

- quote -

First, if the residence was community property, the step up
in basis applies to both halves;

Second, in your scenario, the $500,000 exemption applies
because the spouse's death occured in the same year of sale.

Mike Lewis, CPA

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avdm[at]heritagehunt.org wrote:

- quote -

As you said, she gets a stepped up basis for his half.
That's good, no downside there. She then only gets $250K
exemption. If you roll this around, you'll see this is the
best of both worlds. If the house went from $100K to $1100K,
her basis is His $550 + Her $50K = $600K She has a gain of
$500K - $250 exemption so she is taxed on $250 even though
she is up $1M, and would otherwise have had a taxable $500K
had they sold while he was alive.

JOE

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avdm[at]heritagehunt.org wrote:

- quote -

According to Pub 523 and your facts, she gets $500,000
exclusion. If they resided in a community property state,
she may in fact get a stepped up basis on the entire
property if she inherited her spouse's half, which makes the
question moot. (Although I can't claim to fully understand,
for example, California Form 1039 which addresses this in
mind-numbing detail...).

-Mark Bole

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avdm[at]heritagehunt.org wrote:

- quote -

I'd have to double check but my instincts tell me she gets
the $500K.

If she waited and sold in 2006 she would only get the $250K.
I believe that the key is that the house is sold as part of
a JOINT return.

Good luck,
Gene E. Utterback, EA, RFC

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She gets the step-up on his 1/2 in a non-community property.
In a community property state the entire house is stepped up
in basis. However, when filing MFJ she gets the full
$500,000 exemption (in addition to the effect of any
step-up). It is only $250,000 if house is sold in the year
following DOD when she files S or HH or QW..

ed

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<avdm[at]heritagehunt.org> wrote

- quote -

They can exclude up-to $500,000 of the gain after factoring
in any basis adjustments.

--
Paul A. Thomas, CPA
Athens, Georgia
paulthomascpapc[at]bellsouth.net

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avdm[at]heritagehunt.org wrote:

- quote -

The first question that needs an answer is, do/did they live
in a community property state (9) and did they own the house
and hold it as community property? If so, the house steps
up to FMV, 100% as of May 2005. It's most likely she keeps
it all and reports nothing.

This should be noted by all married home owners in the 9
states.

BC

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avdm[at]heritagehunt.org wrote:

- quote -

If necessary, she can claim the $500,000 exemption on sale
in the same year, although this is probably unnecessary, due
to the cost basis adjustment on death. If in a "community
property" state, the cost basis is adjusted to the FMV on
date of death and there is unlikely to be anything more than
a small gain or loss on sale of the house.

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Husband and wife lived in house 2 out of last 5 years.
Husband died in May 2005, wife sold house in July 2005.
Widow filing Married filing jointly. She gets a stepped up
basis for his half of house plus half of their "old" basis.
Does she get the $500,000 exemption or the $250,000
exemption?

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