My parents purchased their house 48 years ago, paying $42,000. My father passed away in 2013. My mom just sold the house for $430,000. Since my father passed away, is she entitled to the $500,000 exemption on her profit?

No. She would have had to sell it within two years of his death to claim the $500,000 tax exemption that's available to married couples on the sale of their primary residence. But the fact that your parents bought the house before 1977 qualifies her for a break under an old tax law.

Under current law, a surviving spouse inherits half of a jointly-owned spousal house at its market value. Here's an example (to keep it simple, I've omitted sales expenses and capital improvements from the calculation):

John and Cathy pay $145,000 for their house in 1980. When he dies in 2013, it's worth $300,000. Cathy inherits John's half at its $150,000 then-market value. Five years later, she sells the house for $500,000. Her profit is the sale price minus her original cost. Her original cost is $222,500: $150,000 (the half she inherited from John) plus $72,500 (her half of the $145,000 1980 purchase price). The $500,000 sale price minus $222,500 is $277,500. As an individual, she has a $250,000 tax exemption. She owes taxes on $27,500.

But under the earlier law that applies to spousal property purchased before 1977, Cathy can inherit the whole house at its $300,000 market value at the time of John's death. Her profit is therefore $500,000 minus $300,000 equals $200,000. [Tax professionals, see two tax cases: Gallenstein M. Lee v. U.S. (1992), and Therese Hahn v. U.S. (1998)].

The bottom line

A surviving spouse qualifies for special tax treatment on the sale of inherited jointly-owned marital property that was purchased before 1977.

More information


An earlier version of this column misstated the amount Cathy would owe taxes on. The correct amount is $27,500.

TO ASK THE EXPERT Send questions to Include your name, address and phone numbers. Questions can be answered only in this column. Advice is offered as general guidance. Check with your own consultants for your specific needs.


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