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After a spouse dies: the home’s basis and the gain on a sale

When a spouse dies, some or all of a home’s income-tax basis can be adjusted to its value at death. How much depends on how the home was owned, and a larger adjustment can mean much less taxable gain when the home is sold.

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YOUR NUMBERS

See why ownership changes the picture.

Compare income-tax basis after a spouse’s death and the gain on a later home sale. Title and estate inclusion determine the applicable treatment.

Example values. Edit them or choose Clear inputs to start your own case.

1. Home values

Enter whole-home amounts. Income-tax basis is not your property-tax assessment or mortgage balance.

Adjusted basis immediately before death ($)Appraised value at death ($)Assumed sale price ($)Selling costs ($)OptionalBlank means no selling costs.Capital improvements after death ($)OptionalBlank means no improvements. No depreciation is modeled.

2. Established ownership

Ownership at deathThe deceased spouse’s interest passes outright to the survivor and ownership/estate inclusion are established. For community property, at least half is includible in the deceased spouse’s gross estate; California residency alone is insufficient.Ordinary date-of-death value applies: no alternate or special estate valuation, gift-back within one year, trust/entity ownership, foreign-property issue or other basis exception. This is not a 2010 death.This is a personal-use home with no rental/business use, depreciation, nonqualified use, like-kind exchange, expatriation, installment sale, remainder interest or partial exclusion issue.

3. Optional home-sale exclusion

Exclusion to evaluateOptional

WORKED EXAMPLE

The example, step by step.

The situation

A home with a $600,000 adjusted basis, appraised at $2,400,000 at death
Held as qualifying community property
Sold later for $2,600,000 with $100,000 of selling costs

What the calculator finds

The whole home’s basis adjusts to $2,400,000, an increase of $1,800,000.
The sale realizes $2,500,000 after selling costs, a $100,000 gain before any home-sale exclusion.

Qualifying community property may receive an adjustment on the whole home. A qualified spousal joint interest generally adjusts the inherited half. Either adjustment can be downward.

HOW IT WORKS

What goes in.
What comes out.

Enter the adjusted basis just before death, the appraised value at death, an assumed sale price and selling costs, all for the whole home.

Choose the established ownership: community property, a qualified spousal joint interest, a home owned entirely by the deceased spouse, or separate interests. The result shows the basis and gain for that ownership and compares the alternatives.

Optionally evaluate a home-sale exclusion of up to $250,000, or up to $500,000 for an eligible surviving spouse.

KNOW THE LIMITS

What it does not cover.

It does not determine how your home was owned; title, state law and estate documents do.
Trusts, depreciation, partial business use, estate tax and alternate valuation dates are outside its coverage.
Property-tax reassessment, such as under California’s Proposition 19, is separate from income-tax basis.

Questions

What is a step-up in basis?

For income tax, inherited property generally takes a basis equal to its fair market value at the date of death. If that is higher than the original basis, the gain that built up before death is not taxed on a later sale.

Does the whole house get a step-up when a spouse dies?

It depends on ownership. Qualifying community property can receive an adjustment on the whole home. For a qualified spousal joint interest, generally only the deceased spouse’s half is adjusted.

Can a surviving spouse still use the $500,000 home-sale exclusion?

A surviving spouse may be able to use the $500,000 exclusion for a sale within two years of the spouse’s death if the other requirements are met. The calculator can evaluate it when you enter the dates.

WHEN YOU’RE READY FOR MORE CONTEXT

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