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Ask the Expert: Tax exemption on the profit from selling a primary home

My husband died in September 2019. We're both on the deed of our primary home, where I've lived for 43 years. Can I claim the $500,000 capital-gains tax exemption when I sell it? If I later buy another house for less value in another state, will it change tax exemption?

You can claim the $500,000 capital gains exemption if:

1) You sell your house within two years of your late husband's date of death; 2) you haven't remarried at the time of the sale; 3) neither you nor he claimed the exemption on the sale of another house less than two years before this sale; and 4) you've owned and lived there for two of the five years before the sale, and so did your late husband for the same period before his death.

Let's say you paid $50,000 for the house. If you bought it after 1977, you inherited your husband's half at its market value when he died. If the house was then worth $350,000, you inherited his half for $175,000. Let's say you sell the house for $385,000. Your profit is the $385,000 sale price minus your original cost. (To keep it simple, I'm omitting sales expenses and capital improvements.) Your original cost is $200,000: $25,000 (your half of the purchase price) plus $175,000 (the half you inherited from your late husband). Your profit in this example is $185,000 — all tax-free, whether you qualify for a $500,000 exemption or only for a $250,000 exemption as a single taxpayer.

If you bought the house before 1977, you inherited it entirely at market value, making your potentially taxable profit even smaller.

The bottom line

The tax exemption on your profit from selling your primary home isn't affected by your purchase of another house, regardless of its price or location.

More information

irs.gov/taxtopics/tc701

nwsdy.li/NoloHomeSaleTax

TO ASK THE EXPERT Send questions to act2@newsday.com. 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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