Reverse & HECM Mortgages — New Tax Relief From Congress

A new law created by Congress will provide significant tax relief in situations where there has been the death of a spouse.

Under the old tax rule, a home had to be sold by December 31st in the year a spouse died to qualify for the $500,0000 residential capital gains write-off. If the property was sold after December 31st — the end of the tax year for just about everyone — then the surviving spouse would be a single owner and thus only entitled to a $250,000 write off.

This has been one of those nutty rules which effectively forced surviving spouses to quickly sell a home at a time when they face enormous emotional distress.

However, under H.R. 3648, legislation sponsored by Rep. Charles Rangel (D-NY), chairman of the House Ways and Means Committee, surviving spouses would now have two years from the date of passing to sell a principal residence and still qualify for the $500,000 write-off which is available to married homeowners.

The portion of the legislation relating to the change is below.

And we say: thank you Mr. Rangel.

SEC. 7. APPLICATION OF JOINT RETURN LIMITATION FOR CAPITAL GAINS EXCLUSION TO CERTAIN POST-MARRIAGE SALES OF PRINCIPAL RESIDENCES BY SURVIVING SPOUSES.

(a) Sale Within 2 Years of Spouse’s Death- Section 121(b) of the Internal Revenue Code of 1986 (relating to limitations) is amended by adding at the end the following new paragraph:

(4) SPECIAL RULE FOR CERTAIN SALES BY SURVIVING SPOUSES- In the case of a sale or exchange of property by an unmarried individual whose spouse is deceased on the date of such sale, paragraph (1) shall be applied by substituting `$500,000′ for `$250,000′ if such sale occurs not later than 2 years after the date of death of such spouse and the requirements of paragraph (2)(A) were met immediately before such date of death.’.

(b) Effective Date- The amendment made by this section shall apply to sales or exchanges after December 31, 2007.

This entry was posted on Friday, December 28th, 2007 at 10:56 am and is filed under Reverse Mortgage . You can follow any responses to this entry through the RSS 2.0 feed. You can leave a response, or trackback from your own site.