Suze Orman Tells Widows to Move Slowly. The IRS Gives Two Years to Sell the House
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Suze Orman’s advice to a surviving spouse is to move slowly and make as few financial decisions as possible. The IRS puts a clock on one of those decisions. A widow who sells the family home within two years of her husband’s death can exclude up to $500,000 of the gain from tax, the same amount a married couple gets. After two years the exclusion drops to $250,000. For a 72-year-old widow in a $1 million house, letting that date pass costs about $30,000.
Consider a widow of 72 whose husband died in February 2025, when she was 70. They bought the house in 1991 for $150,000, and it would sell today for about $1 million. His IRA, now hers, holds $800,000, and she draws $40,000 a year from it. Social Security went from two checks to one when he died: she now receives his larger benefit, $2,400 a month. She is thinking about selling and moving closer to her daughter.
The two-year rule reads as a deadline to decide, and that is how to treat it: the larger exclusion is worth keeping, and the limit is that a house sold in a hurry cannot be bought back. The clock sets the date for your decision, and the answer is still yours.
What the house is worth to the IRS
Start with the gain, which depends on your basis. Her half of the house keeps its original cost, $75,000. Her husband’s half gets a new basis equal to its value on the day he died. The house was worth $950,000 then, so his half is worth $475,000, and her basis in the whole house is $550,000. IRS Publication 523 spells this out, and it is the first reason to get an appraisal dated to the death.
A sale at $1 million with $50,000 of commissions and closing costs leaves $950,000. Subtract the $550,000 basis and the gain is $400,000. Without the step-up on his half it would have been $800,000. In the nine community property states, California and Texas among them, the whole house takes the date-of-death value, so her gain would be about zero and the clock would barely matter.
A sale inside the two years
If you are the surviving spouse, the date that counts is the closing date. Publication 523 lets you keep the $500,000 exclusion if the sale closes within two years of the death, you have not remarried by the closing date, and the two of you owned the home and lived in it for at least two of the five years before the sale.
Her $400,000 gain sits under the $500,000 line, so none of it is taxed. Her income that year is what it would be in any year: $40,000 from the IRA and $28,800 of Social Security, of which $21,840 is taxable under the IRS worksheet. With the $16,100 standard deduction, the $2,050 addition for being over 65 and the $6,000 senior deduction, her taxable income is $37,690 and her federal tax is $4,275. Her Medicare Part B premium stays at the standard $202.90 a month.
A sale after the two years
Let the date pass and she sells as a single filer with a $250,000 exclusion. Now $150,000 of the gain is taxable, and it lands on top of her other income. The first $3,120 of it fits inside the 0% capital gains bracket, which ends at $49,450 of taxable income. The remaining $146,880 is taxed at 15%, which is $22,032.
The gain does two more things. It pushes her provisional income to $204,400, so 85% of her Social Security, $24,480, becomes taxable. And it wipes out the $6,000 senior deduction, which shrinks by 6 cents for every dollar of income above $75,000. Those two changes add $1,037 of ordinary tax. Her adjusted gross income of $214,480 also crosses the $200,000 line for the 3.8% net investment income tax, which takes $550 more. Her federal tax for the year is $27,894 against $4,275, a difference of $23,619.
The Medicare bill two years later
Medicare sets its Part B and Part D surcharges from the tax return two years back, and a single filer’s brackets are about half the married ones. Her $214,480 lands above the $205,000 line. At 2026 rates that means a Part B premium of $649.20 a month instead of $202.90 and a Part D surcharge of $83.30, an extra $529.60 a month, or $6,355 for the year. A home sale is not on Social Security’s list of life-changing events for appealing the surcharge, so you pay that year, and the premium resets the year after.
Add it up: $23,619 of federal income tax and $6,355 of Medicare premiums, about $30,000, or 7.5% of the gain, for selling the same house a few months later.
What Orman's rule and the IRS clock agree on
Both are about time. Orman writes that “keeping the money in a safe bank or credit union account for a year or so is just fine,” and that a surviving spouse should wait until she is “feeling a bit more settled” to make clear-eyed decisions. The IRS gives two years. That leaves the first year for grief and paperwork and the second for the decision, with the appraisal and a talk with the kids done well before the deadline.
Two more rules shape it. She could file a joint return for the year he died. From the next year she files single, because keeping the joint brackets for two more years requires a dependent child at home. That is the widow’s penalty, and it is why the sale-year income above hurts as much as it does. And if she decides to stay, the clock stops mattering: a home that passes to her children at her death gets a full step-up in basis, and the gain disappears for them.
Where this plan is weak
The figures are federal only, and state income tax on the gain comes on top where there is one. Next year she turns 73 and her first required minimum distribution arrives, about $30,189 on an $800,000 balance at the IRS divisor of 26.5, so a late sale in an RMD year stacks the gain on top of that. The $950,000 date-of-death value is an assumption. A qualified appraisal sets your real one.
The bottom line
A 72-year-old widow selling a $1 million house bought in 1991 has a $400,000 gain after the step-up on her husband’s half. Inside two years of his death the $500,000 exclusion covers all of it and her federal tax for the year is $4,275. After two years, $150,000 of the gain is taxable, her federal tax is $27,894, and two years later Medicare charges her $6,355 more. The cost of waiting is about $30,000. Orman’s rule says take your time. The IRS says you have two years of it.
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