idreos wrote:
- quote -

were embedded in the Mortgage Forgiveness Debt Relief Act
of 2007 (H.R. 3648). Starting January 1, 2008, the time period
for the surviving spouse to utilize the $500,000 exclusion is
extended to any sale that occurs within two years of the date of
death.

SEC. 7. APPLICATION OF JOINT RETURN LIMITATION FOR CAPITAL GAINS
EXCLUSION TO CERTAIN POST-MARRIAGE SALES OF PRINCIPAL RESIDENCES
BY SURVIVING SPOUSES.

(a) Sale Within 2 Years of Spouse's Death- Section 121(b)
of the Internal Revenue Code of 1986 (relating to limitations) is
amended by adding at the end the following new paragraph:

`(4) SPECIAL RULE FOR CERTAIN SALES BY SURVIVING
SPOUSES- In the case of a sale or exchange of property by an
unmarried individual whose spouse is deceased on the date of such
sale, paragraph (1) shall be applied by substituting `$500,000'
for `$250,000' if such sale occurs not later than 2 years after
the date of death of such spouse and the requirements of
paragraph (2)(A) were met immediately before such date of death.'.

(b) Effective Date- The amendment made by this section
shall apply to sales or exchanges after December 31, 2007.

The reference to sec. 121(b)(2)(A) is to the part that says a
married couple have to jointly meet the two year use test and at
least one spouse must be meet the two year ownership test.

In other words, if at the time of death of one spouse, the couple
qualified for the $500,000 exclusion, the surviving spouse will
continue to receive the $500,000 exclusion as long as the house
is sold within two years of the date of death. This is in
addition to any step-up in cost basis at the time of death.

--
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- quote -

I agree that BNA's prose isn't up to the Tax Court's standards but it's
probably adequate for what the original poster needs to know.


Condor

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<< ------------------------------------------------------- > << The foregoing was not intended or written to be used, > << nor can it used, for the purpose of avoiding penalties > << that may be imposed upon the taxpayer. > << > << The Charter and the Guidelines for submitting posts > << to this newsgroup as well as our anti-spamming policy > << are at www.asktax.org. > << Copyright (2007) - All rights reserved. > << ------------------------------------------------------- >

On Jul 19, 3:55�pm, "Condor" <Con...[at]loosecannon.net> wrote:
- quote -

Just idle curiosity, I guess, took me to this address, and I found the
BNA write-up - just the first paragraph - to be less than thorough:

"The maximum amount of gain that a taxpayer can exclude from the sale
or exchange of a
personal residence is $250,000 ($500,000 for married taxpayers filing
jointly), but this
only applies if the taxpayer has lived in the home for two of the five
years preceding the
sale and has not sold another home within two years."

"...this only applies...." *What* only applies? The maximum
amount? The exclusion?

Is the residence "personal" or "principal" or is it "the main home"?
OK, they probably get to that somewhere else...

What about the ownership requirement? And the exclusion can't be used
within two years of a sale *that the exclusion applied to*.

This is less than I'm used to getting from BNA.

--
<< ------------------------------------------------------- > << The foregoing was not intended or written to be used, > << nor can it used, for the purpose of avoiding penalties > << that may be imposed upon the taxpayer. > << > << The Charter and the Guidelines for submitting posts > << to this newsgroup as well as our anti-spamming policy > << are at www.asktax.org. > << Copyright (2007) - All rights reserved. > << ------------------------------------------------------- >

In article
<39c47060-9a2d-4871-9077-22b864784896[at]i76g2000hsf.googlegroups.com> ,
idreos <victorvoul[at]gmail.com> wrote:

- quote -

As of the Taxpayer Relief Act of 1997, capital gains on house sales are
no longer deferred. The capital gains exclusion refers to each sale of a
house, whatever is done with the proceeds. So if the spouse sells the
house in the same year, $500000 of capital gains on the sale are not
taxed.

- quote -

Normally, the basis for the sale of the house is what was paid for the
house. However, if any property is inherited, the basis for the property
is stepped up to the fair market value of the property at the time of
death. The surviving spouse inherits half of the house, so the basis for
the house becomes half of the original basis ( the basis for the
spouse's half of the house) plus one half the fair market value of the
house ( the half of the house that was inherited). Given a house that
was purchased for $100K and is worth $500K, the basis of the house is
stepped up from $100K to $300K, upon the death of either spouse with the
other spouse inheriting.

- quote -

No. The basis is $750000, because the basis is stepped up to 100% of the
fair market value.

If the parent had a $500,000 capital gain
- quote -

The step up eats the capital gain. A capital gains exclusion only
applies to a sale not to a person.

--
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- quote -

There is no deferral of capital gains. The old deferral rule (IRC § 1034)
was repealed in 1997 and replaced with the current $250,000/$500,000
exclusion. For more information, see IRS Publication 523. Also, BNA has a
good tract on sale of a personal residence.

http://www.irs.gov/pub/irs-pdf/p523.pdf

http://www.bnasoftware.com/media_lib..._Exclusion.pdf


Condor

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<< ------------------------------------------------------- > << The foregoing was not intended or written to be used, > << nor can it used, for the purpose of avoiding penalties > << that may be imposed upon the taxpayer. > << > << The Charter and the Guidelines for submitting posts > << to this newsgroup as well as our anti-spamming policy > << are at www.asktax.org. > << Copyright (2007) - All rights reserved. > << ------------------------------------------------------- >

In article <39c47060-9a2d-4871-9077-22b864784896[at]i76g2000hsf.googlegroups.com> ,
idreos <victorvoul[at]gmail.com> wrote:
- quote -

I'm not condor but I'm sure he or she will chime in if my
answer needs fixing.


First, where, out of the clear blue sky, did the notion of
having to ever put proceeds from sale into another property
come from?


Well, there used to be a law, superseded more than eleven years
ago, that had that built in, but it's eleven years later and the
law condor cited is the one that applies. Notice condor never
mentioned investing funds into another house.


And you can repeat this $500,000/250,000 exclusion of gain
rule every 24 months.

- quote -


Jointly owned property in a common law property state assumes it is 1/2
owned by one spouse and 1/2 by 'tother. The deceased's 1/2 portion
has its basis stepped up to FMV on date of death (or avd if chosen by
the executor)


- quote -

If the daughter inherits her parent's property with FMV 750,000 on
date of death, then her cost basis is long term and is 750,000.

If the parent had a $500,000 capital gain
- quote -

The deceased's former basis is reset to FMV at death. (If the
executor determines that estate tax will be lower if all property
is valued at the alternative valuation date of date of death plus
six months, then the executor may choose FMV at avd instead.)

--


ArtKamlet at a o l dot c o m Columbus OH K2PZH

--
<< ------------------------------------------------------- > << The foregoing was not intended or written to be used, > << nor can it used, for the purpose of avoiding penalties > << that may be imposed upon the taxpayer. > << > << The Charter and the Guidelines for submitting posts > << to this newsgroup as well as our anti-spamming policy > << are at www.asktax.org. > << Copyright (2007) - All rights reserved. > << ------------------------------------------------------- >

Condor,

Thank you for your quick reply. Please clarify

- quote -

Do I assume that if the spouse sells the home the same year and puts
the proceeds into another home, the capital gains will again be
deferred?

- quote -



- quote -

at the time she inherited it of $750,000 and decided to sell it, her
cost basis would be 500,000? If the parent had a $500,000 capital gain
on the house that was postponed what happens to that gains tax and
the $250,000 capital gains exclusion that the parent never used?

Thank you very much for your opinion!

Victor

--
<< ------------------------------------------------------- > << The foregoing was not intended or written to be used, > << nor can it used, for the purpose of avoiding penalties > << that may be imposed upon the taxpayer. > << > << The Charter and the Guidelines for submitting posts > << to this newsgroup as well as our anti-spamming policy > << are at www.asktax.org. > << Copyright (2007) - All rights reserved. > << ------------------------------------------------------- >

- quote -

If the house is sold in the year of death and the surviving spouse files a
joint return with the deceased spouse, the $500,000 exclusion limit applies.
If sold following the year of death and the surviving spouse has not
remarried, the exclusion limit is $250,000.


- quote -

A surviving spouse who inherits the property gets a ½ basis step-up if
domiciled in a non-community property state. If domiciled in a community
property state, the surviving spouse's basis is stepped up to 100% of fair
market value (FMV). See the list of community property states at the link
below.

http://www.irs.gov/publications/p555/ar01.html

A nonspousal survivor who lives in any state gets a 100% basis step-up to
FMV.


Condor

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<< ------------------------------------------------------- > << The foregoing was not intended or written to be used, > << nor can it used, for the purpose of avoiding penalties > << that may be imposed upon the taxpayer. > << > << The Charter and the Guidelines for submitting posts > << to this newsgroup as well as our anti-spamming policy > << are at www.asktax.org. > << Copyright (2007) - All rights reserved. > << ------------------------------------------------------- >

I understand that a married couple is entitled to a $500,000 deduction
on long term capital gains for the sale of the home they have lived in
for over two years.

If one should die, am I correct to assume that the surviving spouse
will now only be entitled to only a $250,000 deduction of the capital
gains?

Also if a person inherits a home what determines the adjusted cost
basis for their inherited property should they live in the house for
two years and then decide to sell the house?

Thanks for your help!

--
<< ------------------------------------------------------- > << The foregoing was not intended or written to be used, > << nor can it used, for the purpose of avoiding penalties > << that may be imposed upon the taxpayer. > << > << The Charter and the Guidelines for submitting posts > << to this newsgroup as well as our anti-spamming policy > << are at www.asktax.org. > << Copyright (2007) - All rights reserved. > << ------------------------------------------------------- >