CCH Federal Taxation Basic Principles
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Joe, a single individual, has owned and occupied his principal residence for over two years. On January 1, 20x2, he marries Sue and they begin living together in Joe’s house. Three weeks later, Joe dies and ownership of the house is transferred to Sue. Sue immediately sells the house. Despite not owning and occupying the residence for two years, Sue can claim a $500,000 exclusion on their joint return (Joe’s final return). She is deemed to have owned and occupied the house during the period in which her deceased spouse owned and occupied it, thus satisfying the two-out-of-five-year holding period requirement. If she delays the sale until a later year, then as a single taxpayer, her maximum exclusion would drop to $250,000.
Sale of Home by Widowed Taxpayers
Chapter 11, Exhibit 6b