Tax Consequences of Selling a House After the Death of a Spouse (2026 Rules)
Updated: 1 hour ago
If you're weighing the tax consequences of selling a house after the death of a spouse, two separate clocks started on the day your husband or wife died. One of them never runs out.
The other runs out in exactly two years. The first clock is the step up in basis, which can erase decades of appreciation on paper, and the second is the larger home sale exclusion available to surviving spouses. Here's how both work under the 2026 rules, with a worked example.
The short answer: A surviving spouse who hasn't remarried can exclude up to $500,000 of gain on a home sold within two years of the spouse's death. After that, the limit is $250,000. Before either limit applies, the deceased spouse's share of the home resets to its date of death value, which can erase much of the gain.
Key takeaways
The step up in basis and the home sale exclusion are separate tax breaks, and a surviving spouse can use both on the same sale.
In common law states, a home owned jointly usually gets a step up on half its value; community property and homes owned only by the spouse who died generally step up in full.
The $500,000 limit lasts two years from the date of death, measured to the closing date, and it ends if you remarry before the sale.
The two year deadline only changes your federal tax when the gain left after the step up is more than $250,000.
Taxable gain can also bring the 3.8% net investment income tax and higher Medicare premiums two years later.
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How long do you have to sell? The surviving spouse home sale exclusion
You have two years from the date of death to close the sale and still use the $500,000 limit, provided you haven't remarried. After that deadline, you can still sell, but your exclusion falls to the $250,000 available to single filers.
The rule comes from Section 121(b)(4) of the Internal Revenue Code. It lets an unmarried surviving spouse use the $500,000 limit if the sale occurs no later than two years after the death and the couple would have qualified for that limit right before it. IRS Publication 523 (2025 edition) translates that into four eligibility tests:
You sell the home within two years of your spouse's death.
You haven't remarried at the time of the sale.
Neither you nor your late spouse claimed the exclusion on another home sold during the two years before this sale.
You meet the two year ownership and residence requirements, counting your late spouse's ownership and residence.
Two details regularly catch surviving spouses off guard.
First, the date of sale is the closing, not the contract. Publication 523 defines it as the earlier of the date title transfers or the date the economic burdens and benefits of ownership shift to the buyer, so a spouse who died on September 15, 2025 leaves a closing deadline of September 15, 2027.
Second, the year of death follows different rules. A surviving spouse who hasn't remarried by December 31 can usually file one final joint return for that year, according to the IRS, so a sale that closes during the year of death can use the ordinary $500,000 joint limit on that return, provided the usual joint ownership and use tests are met.
The statute contains no extension for slow markets. If the house is still listed in month 23, plan your taxes around the $250,000 limit.
What happens to the cost basis of a home when one spouse dies?
The portion of the home that passes from the spouse who died receives a new cost basis equal to its fair market value on the date of death. How large that portion is depends on how the two of you held title and which state you live in, while your own portion usually keeps its original basis.
Cost basis is roughly what you paid for the home, plus certain closing costs and the cost of improvements. Your taxable gain equals the sale price, minus selling expenses, minus that adjusted basis. A higher basis means a smaller gain.
How the home was owned | What steps up | Source |
Joint tenants with right of survivorship, or tenants by the entirety, in a common law state | The deceased spouse's half. Your half keeps its old basis. | IRS Pub 523 |
Community property (AZ, CA, ID, LA, NV, NM, TX, WA, WI) | Generally the whole home, if at least half is included in the deceased spouse's estate | IRS Pub 523; IRC §1014(b)(6) |
Owned only by the spouse who died, including in his or her own revocable trust | Generally the whole home | IRC §1014 |
Owned only by the surviving spouse | Nothing | IRC §1014 |
Virginia, Maryland and every state outside that list follow common law rules, so a married couple who owned a home as joint tenants usually receives a step up on only half of it.
Five common law states now allow married couples to opt in to community property treatment through a specially drafted trust: Alaska, Tennessee, South Dakota, Kentucky and Florida. The goal is a full step up at the first death, but the IRS hasn't taken an official position on these elective trusts, according to a 2023 analysis by Greenleaf Trust. Treat them as a planning conversation, not a certainty.
For how the step up applies to stocks, mutual funds and other investments, see our guide to the step up in basis when a spouse dies.
Unsure how the deed was titled? Pull a copy before you list the house, because title sets the size of the step up.
Do you get the step up and the $500,000 exclusion?
Yes, you can use both on the same sale, because the step up reduces the gain and the exclusion then shelters some or all of what remains.
This is a misunderstanding we see often in our work with surviving spouses. Some assume the IRS makes them choose one benefit or the other. Publication 523 treats them as two separate calculations: you first determine your adjusted basis with any step up included, then apply your exclusion limit to the resulting gain.
That sequence matters for planning, because the step up can do most of the work, and when it leaves a gain under $250,000, the two year deadline never becomes relevant at all.
If your gain after the step up is under $250,000, the single filer exclusion already covers it.
What are the tax consequences of selling a house after the death of a spouse? A 2026 example
Hypothetical example. The people and numbers below are fictional and are used only to illustrate how the rules work. This example does not represent any actual client, is not a recommendation, and is not a guarantee of any outcome. Your results will depend on your own facts.
Carol is 68 and lives in Virginia. She and her husband, Jim, bought their home in 1994 for $300,000, spent $100,000 on improvements over the years, and owned it as joint tenants with right of survivorship. Jim died in September 2025, when an appraiser valued the home at $1,500,000. Carol now files as a single taxpayer, with $95,000 a year of other adjusted gross income from a pension, IRA withdrawals and the taxable part of her Social Security.
Step 1: the new basis. Carol's half keeps its original basis of $200,000 ($400,000 ÷ 2), while Jim's half steps up to $750,000 ($1,500,000 ÷ 2), for a new adjusted basis of $950,000.
Step 2: the gain. She sells for $1,550,000 and pays $90,000 in selling expenses, leaving $1,460,000. Her gain is $510,000.
Without the step up, her gain would have been $1,060,000. In a community property state, her basis would be the full $1,500,000. She would have no taxable gain at all.
Step 3: the tax. The table compares the same sale closed inside the window and after it, using 2026 federal figures for both columns.
Sells by September 2027 | Sells after September 2027 | |
Gain after step up | $510,000 | $510,000 |
Exclusion | $500,000 | $250,000 |
Taxable gain | $10,000 | $260,000 |
Capital gains tax at 15% | $1,500 | $39,000 |
Net investment income tax at 3.8% | $0 | $5,890 |
Extra tax from a smaller senior deduction | $132 | $1,056 |
Added federal income tax from the sale | $1,632 | $45,946 |
Medicare surcharges two years later (2026 schedule) | $0 | About $6,355 |
Selling after the deadline costs Carol about $44,300 more in federal income tax. Including the Medicare surcharges, the gap grows to about $50,700.
Here's where each line comes from. For 2026, long term gains are taxed at 15% for single filers with taxable income between $49,450 and $545,500, under IRS Revenue Procedure 2025-32. The 3.8% net investment income tax under IRC §1411 applies to the smaller of her taxable gain or her income above $200,000, and her $355,000 of income sits $155,000 over that threshold. The new $6,000 deduction for taxpayers 65 and older phases out as income rises above $75,000, according to IRS Publication 6142.
Medicare sets premiums using income from two years earlier. In 2026, a single beneficiary with income from $205,001 to $499,999 pays $649.20 a month for Part B instead of the standard $202.90, plus an $83.30 monthly Part D surcharge, according to CMS. The schedules that would actually apply to Carol, two years after her sale, haven't been published.
In our planning work with surviving spouses, the first number we request is the date of death value. Every other calculation in this table depends on that appraisal.
Is there a capital gains tax exemption for widows?
No special tax rate exists for widows or widowers. What surviving spouses receive is the step up in basis and, for two years, the $500,000 home sale exclusion, and any gain remaining after both is taxed like anyone else's.
That remaining gain counts as a long term capital gain if the home was owned for more than a year. For 2026, a single filer pays 0% on gains that fit under $49,450 of taxable income, 15% up to $545,500, and 20% above that, per Revenue Procedure 2025-32.
A taxable gain can also bring the 3.8% net investment income tax and, two years later, higher Medicare premiums. Selling property isn't a reason Social Security will lower those premiums, although the death of a spouse is, according to SSA's operations manual.
If a taxable gain will push your income above $109,000 as a single filer, the 2026 starting point for the surcharge according to CMS, budget for higher Medicare premiums two years later.
Should you sell inside the two year window?
Only if both the numbers and your life point that way. The deadline changes your federal tax only when your gain after the step up exceeds $250,000; below that amount, the single filer exclusion covers it, and you can sell on your own schedule.
The decision rule we use is straightforward. Estimate the date of death value, calculate your new basis and likely gain, and then compare that gain to $250,000.
If the gain is under $250,000, the two year deadline doesn't change your federal tax.
If the gain falls between $250,000 and $500,000, every dollar above $250,000 becomes taxable once the window closes, which at a 15% rate means up to $37,500 of additional tax before the 3.8% surtax.
If the gain exceeds $500,000, part of it is taxable either way, but the window still shelters the portion between $250,000 and $500,000.
Grief doesn't follow a tax calendar. Some surviving spouses know within months that the house is too large or too far from family, while others need a year before they can face sorting a closet.
Both responses are completely reasonable. Knowing the deadline lets you decide on purpose. If the window's worth $40,000 to you, that's valuable information to weigh against everything else happening in your life right now. If it's worth nothing, let it pass.
If staying put fits your life and your gain is under $250,000, waiting costs you nothing in federal tax.
What records do you need before you sell?
You need two things: evidence of the home's value on the date of death and documentation of what you spent on improvements. Together they establish your adjusted basis, and a higher basis produces a smaller taxable gain.
Publication 523 says the basis of an inherited interest is its fair market value on the date of death. If an estate tax return was filed or required, the value reported on that return controls; otherwise, the appraised value at death applies. Estates under the 2026 federal exemption of $15,000,000 per person generally aren't required to file one, according to the IRS, so a professional appraisal as of the date of death is often the best evidence available.
Improvements count as well. Publication 523 lists additions, a new roof, central air conditioning, a replacement furnace, kitchen modernization, landscaping and fencing, among others, while routine repairs and painting don't qualify.
This issue is personal at our firm. When our CEO's father died, his mother faced selling the home they had owned for nearly 34 years, and he went through decades of files to itemize every improvement. That work saved her nearly $40,000 in taxes.
"Keeping meticulous records of home improvements is vital. These costs can be added to your basis, potentially reducing your capital gains tax if you sell," says Megan Waters, CFP®, at Covenant Wealth Advisors in Richmond, Virginia.
For the full calculation, see how the capital gains tax is calculated.
If you have no appraisal as of the date of death, order a retrospective appraisal before you list the house.
What mistakes should you avoid before selling?
The costly mistakes below involve title, timing or past business use of the home. State rules matter too, though usually less than people fear.
Retitling the house to a dying spouse. If you give appreciated property to a spouse who dies within one year, and it passes back to you, there is no step up, and you keep the original basis under IRC §1014(e).
Past home office or rental use. Depreciation claimed after May 6, 1997 for a home office or rental can't be excluded, and Publication 523 says it is taxed as unrecaptured section 1250 gain when you sell.
Worrying about state inheritance tax. Only Kentucky, Maryland, Nebraska, New Jersey and Pennsylvania still impose one in 2026, after Iowa repealed its tax for deaths on or after January 1, 2025. All five exempt a surviving spouse, according to KeyBank's 2026 state summary.
Overlooking state income tax. Your state may tax the gain as well, so check its treatment before you set an asking price.
Planning around proposals. Several bills in Congress would raise or remove the home sale limits, but as of October 2026 none has passed, according to Congress.gov.
For the broader checklist after a loss, see what to do when a spouse dies.
Frequently asked questions
Do I have to pay capital gains tax when I sell my house after my spouse dies? Only on the portion of your gain above your exclusion. Your gain is figured after the step up in basis, and a surviving spouse who sells within two years of the death and has not remarried can exclude up to $500,000 (IRS Publication 523).
Can I get both the step up in basis and the $500,000 exclusion? Yes, because they are separate rules. The step up resets the deceased spouse's share of the home to its date of death value, and the exclusion then applies to the remaining gain (IRS Publication 523).
What if I remarry before I sell the house? You lose the $500,000 surviving spouse limit, because Section 121(b)(4) of the Internal Revenue Code requires the seller to be unmarried on the date of the sale.
Can the two year deadline be extended? No. The Internal Revenue Code sets the deadline at no later than two years after the date of death, and it provides no extension for slow markets (IRC §121(b)(4)).
What if I sell in the same year my spouse died? You can usually file a joint return for the year of death if you have not remarried by year end, and a sale that closes that year can use the $500,000 joint limit (IRS).
Will selling the house raise my Medicare premiums? It can, because Medicare sets premiums using income from two years earlier, and the Social Security Administration does not treat capital gains from a property sale as a reason to lower them (SSA POMS HI 01120.005).
Do I owe state inheritance tax on my spouse's half of the house? No. As of 2026, the five states with an inheritance tax (Kentucky, Maryland, Nebraska, New Jersey and Pennsylvania) all exempt a surviving spouse.
The house, the deadline and your next step
The step up determines how much gain you have, and the two year window determines how much of it you can exclude. Check the first before you worry about the second.
For some surviving spouses, the gain remaining after the step up fits under $250,000, and the deadline never matters. For others, a few months can be worth tens of thousands of dollars. Either way, the decision to sell should rest on where you want to live and what you can comfortably afford, with the tax consequences understood in advance.
The right answer depends on how the home was titled, your state, your other income and your Medicare situation. If you'd like to talk it through for your own circumstances, we're glad to run the numbers with you, and our guide on how to prepare for the death of a spouse may help with the rest of the plan.
Do you want advice to help simplify your financial life? Contact us today for a free assessment to see how we can help you.
About the author:
CEO and Senior Financial Advisor
Mark is the CEO of Covenant Wealth Advisors and a Senior Financial Advisor helping individuals age 50+ plan, invest, and enjoy retirement comfortably. He has been featured in the New York Times, Barron's, Forbes, and Kiplinger Magazine.
Disclosures: Covenant Wealth Advisors is a registered investment advisor with offices in Richmond, Reston, and Williamsburg, VA. Registration of an investment advisor does not imply a certain level of skill or training. Past performance is no guarantee of future returns. Investing involves risk and possible loss of principal capital. The views and opinions expressed in this content are as of the date of the posting, are subject to change based on market and other conditions. This content contains certain statements that may be deemed forward-looking statements. Please note that any such statements are not guarantees of any future performance and actual results or developments may differ materially from those projected. Please note that nothing in this content should be construed as an offer to sell or the solicitation of an offer to purchase an interest in any security or separate account. Nothing is intended to be, and you should not consider anything to be, investment, accounting, tax, or legal advice. If you would like accounting, tax, or legal advice, you should consult with your own accountants or attorneys regarding your individual circumstances and needs. This article was written and edited by a CERTIFIED FINANCIAL PLANNER™ professional with the assistance of AI. No advice may be rendered by Covenant Wealth Advisors unless a client service agreement is in place. Hypothetical examples are fictitious and are only used to illustrate a specific point of view. Diversification does not guarantee against risk of loss. While this guide attempts to be as comprehensive as possible but no article can cover all aspects of retirement planning. Be sure to consult an advisor for comprehensive advice.
