Learn about important tax considerations following a spouse’s death.
- June 23, 2016
- David Greene
- Comments Off on Learn about important tax considerations following a spouse’s death.
There are four important tax considerations one needs to consider following the death of a spouse. First, if you haven’t already filed your income tax return, you can still file a joint tax return for the year in which the spouse died. This is almost always advantageous in terms of saving taxes. However, you must have the consent of the estate executor to do so. Second, you are allowed a stepped-up basis in inherited assets, i.e., the basis becomes the value of the asset at the date of death of the deceased spouse. This can save a lot of money in capital gains taxes when the asset is later sold. Third, if you sell your home within two years after the spouse’s death, you are allowed the (larger married) $500,000 home sale gain exclusion for taxes. Fourth, if you inherited a qualified retirement plan, you may be subject to the Required Minimum Distribution rules, depending on your and your spouse’s age. Failure to follow these rules can result in expensive fines.