Hello bynan12-ga,
At the outset, I should emphasize that a Researcher for Google Answers
cannot give professional tax advice. I can only provide the results
of my research. If you need expert interpretation of the tax rules,
you should consult a qualified tax advisor or accountant in your area.
The IRS has recently issued regulations, along with explanatory
material, on the issue of home sale exclusion rules. One piece of
explanatory material begins, "A 1997 law changed the old 'replacement
residence' rules with a new rule that excludes up to $250,000
($500,000 for a married couple filing jointly) of gain."
"Sold your home? - IRS Issues Home Sale Exclusion Rules"
Internal Revenue Service [Department of the Treasury]
http://www.irs.gov/newsroom/article/0,,id=105119,00.htmlhomesale
Likewise, an IRS news release states, "A 1997 law substituted an
exclusion of up to $250,000 ($500,000 for a married couple filing
jointly) for the old 'replacement residence' rules."
"IRS Issues Home Sale Exclusion Rules" (IR-2002-142, Dec. 23, 2002)
Internal Revenue Service [Department of the Treasury]
http://www.irs.gov/newsroom/article/0,,id=105042,00.html
This means -- in the words of an accountancy firm web site -- that
"there is no requirement for taxpayers to reinvest the sales proceeds
of the old residence into a new residence."
"Tax Rules Governing Home Sales Are Overhauled"
Berenson & Company, LLP
http://www.berenson.com/article8.htm
The IRS has issued both permanent regulations and temporary regulation
on the home sale exclusion. The temporary regulations relate to "a
taxpayer who has not owned and used the property as the taxpayer's
principal residence for two of the preceding five years or who has
excluded gain from the sale or exchange of a principal residence
within the preceding two years." Since you indicate that your parents
"lived there 42 years," it appears that the temporary regulations are
not applicable.
"Reduced Maximum Exclusion of Gain From Sale or Exchange of Principal
Residence" (Federal Register: December 24, 2002 (Volume 67, Number
247), Page 78367-78371)
Federal Register Online via GPO Access
http://a257.g.akamaitech.net/7/257/2422/14mar20010800/edocket.access.gpo.gov/2002/02-32280.htm
The permanent regulations contain an "Explanation and Summary of
Comments", which includes a section [#6] on "Property of Deceased
Spouse". This section states, in relevant part:
"Commentators suggested that the regulations allow a surviving spouse
to exclude up to $500,000 of gain if the sale or exchange of the
marital home occurs within one year of the death of the decedent
spouse and the requirements of section 121 are otherwise met. Under
section 121(b)(2), the $500,000 exclusion is only available to
spouses who file a joint return. A surviving spouse is eligible to
file a joint return with the decedent spouse only for the year of the
decedent spouse's death. Therefore, the final regulations do not
adopt this suggestion."
"Exclusion of Gain From Sale or Exchange of a Principal Residence"
(Federal Register: December 24, 2002 (Volume 67, Number 247), Rules
and Regulations, Page 78358-78367)
Federal Register Online via GPO Access
http://a257.g.akamaitech.net/7/257/2422/14mar20010800/edocket.access.gpo.gov/2002/02-32281.htm
Section 13, "Effective Date", states that "these regulations apply to
sales or exchanges on or after December 24, 2002." You indicated that
"Dec. 21 started escrow." So I suppose that it is possible that these
regulations do not apply to this sale -- though, on the other hand,
since the escrow will close on Feb. 3, 2003, the regulations might in
fact apply. But regardless of whether the regulations technically
apply or not, the IRS is now on record as saying that the $500,000
exclusion is not available after the year of the spouse's death. I
assume that your mother would be seeking the exclusion for the 2003
tax year, since the escrow closes in 2003. Thus, it appears that your
mother would only be eligible for the $250,000 exclusion, not the
$500,000 exclusion.
Please let me know if any part of this answer needs clarification -- I
want to make sure that you get your money's worth from my answer!
- justaskscott-ga
Search strategy:
Searched on Google for:
"500,000 exemption"
"replacement residence" home sale exclusion
Found item entitled "Sold Your Home?" on home page of IRS web site;
followed links from that article. |
