Capital Gains Tax Changes

At the end of last year, Congress gave us a gift that few people seemed to notice. Without much fanfare, Congress made a major change to the Capital Gains Tax.

According to the previous version of the Capital Gains Tax, when you sell your primary residence you can deduct $250,000 of the capital gains $500,000 for a married couple filing a joint return (providing you have lived in the house for at least two of the last five years). This remains unchanged. Unfortunately, a problem arose when a spouse dies. The old IRS code said that for the surviving spouse to receive the $500,000 exclusion they must sell their home in the same tax year that they filed their joint return. In other words, if a spouse passed away later in the year, the surviving spouse would be rushed to sell before the tax year ended. Oftentimes that just isn’t enough time – especially in a housing market like this one. This system placed a lot of undue stress on families that already had enough to deal with.

Luckily, Congress has made some changes to ease the stress of these distressed families. According to the new law, the surviving spouse now has two full years to sell their home and still qualify for the $500,000 exclusion. This is a great gift from Congress and the IRS to many of those sellers that need it most.

Please consult your CPA or the proper IRS publication for exact details on how this will apply to you.

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