Surviving Spouse Home Sale Exclusion Extension

Married taxpayers filing jointly can generally exclude from federal taxation up to $500,000 ($250,000 for unmarried taxpayers) of the gain from the sale or exchange of their residence. To be eligible for the exclusion, these taxpayers must have owned the residence and used it as their principal residence for at least two years of the five-year period ending on the date of the sale or exchange.

Prior to 2008, an unmarried individual whose spouse is deceased on the date of the sale or exchange, could still exclude up to $500,000 from federal taxation if the sale occurred in the year of the deceased spouse’s death and certain other requirements were met. However, for sales or exchanges occurring after the year in which the spouse died, the exclusion for the surviving spouse was limited to $250,000.

But a provision of the 2007 Mortgage Relief Act extends the period for the surviving spouse to benefit from the $500,000 exclusion for sales or exchanges after December 31, 2007. Now, a surviving spouse can exclude up to $500,000 if the sale occurs not later than two years after the date of the death of the spouse and the owner-ship and use requirements are satisfied at the date of death. This allows a surviving spouse additional time to market and sell his or her residence and be able to use the higher $500,000 exclusion.