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Hello JA Customer,
The IRS allows taxpayers who are selling their primary residence to exclude the first $250,000 in gains from being taxable. The exclusion amount is raised to $500,000 for married taxpayers.
Two years ago legislation was passed which allows a surviving spouse to still claim the full $500,000 exclusion allowed for married couples, as long as the home is sold within two year's of the first spouse's death. So as long as your mother sells the home within two years of the date your father passed away, she can still claim the full $500,00 exclusion from the gain.
Her gain will be figured by taking the sale price of the home less her basis less the cost of any selling expenses such as real estate commissions. So as an example, if she sells the home for $800,000 and her basis is $200,000, she has a gain of $600,000. If she paid RE commissions of $50,000 that brings her gain down to $550,000. She would be allowed to exclude the first $500,000 of that gain from tax and would owe long term capital gains tax on the remaining gain of $50,000. The long term capital gains tax rate is currently capped at 15%, so she would end up owing $7,500 on this hypothetical sale. Her actual tax amount owed depends on her actual gain, but this is how it would be calculated.
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