Her Husband Will Die in March. If She Sells the House Within Two Years, the IRS Will Still Give Her the Married Couple’s $500,000 Exclusion. Wait Longer and She’s Back to the Single Amount

When a husband dies, nearly everyone gives his widow the same advice: don’t make any big decisions for a year, and it’s sound advice. If she owns a home, though, a federal tax rule starts a clock on the day he dies. A surviving spouse who sells the house within two years can still claim the married couple’s $500,000 home-sale exclusion. If she sells after that window closes, she’s back to the $250,000 single amount.

A $500,000 Exclusion That Outlives the Marriage

The home-sale exclusion lets you exclude profit from your main home from taxable income, and that profit, called the gain, is about the sale price minus your basis. Basis is what the IRS treats as your cost for the house, plus improvements. You normally must meet two tests. You qualify if you owned the home and lived in it as your principal residence for at least 2 years during the 5-year period before the sale. Single filers can exclude up to $250,000. Married couples filing jointly can exclude up to $500,000.

A special rule allows an unmarried widow or widower to keep the $500,000 figure if the sale happens no later than 2 years after the date of death and the couple met the joint requirements immediately before the death.

Where It’s Written in the Tax Code

The rule is 26 U.S.C. § 121(b)(4), titled “Special rule for certain sales by surviving spouses.” IRS Publication 523 lists four conditions. You sell within 2 years of your spouse’s death. You haven’t remarried at the time of the sale. Neither of you took the exclusion on another home sold within 2 years of this sale. And you meet the 2-year ownership and residence requirements, and you can count your late spouse’s time toward them.

Who Qualifies and Who Doesn’t

You must be unmarried on the closing date. You qualify if, just before the death, either spouse met the ownership test and both of you met the use test. If you remarry before the sale, you lose the higher amount. A closing one day after the two-year mark drops the exclusion to $250,000, provided you meet the tests on your own. Taking a year to grieve still leaves time in the window, but the risk comes from waiting much longer or never knowing the window exists.

How Much the Window Is Worth

The answer depends on the basis, which changes at death. Common law states don’t use community property rules. In those states, your late spouse’s half of a jointly owned home gets a new basis equal to its fair market value on the date of death. Your half keeps its old basis. In community property states (Arizona, California, Idaho, Louisiana, Nevada, New Mexico, Texas, Washington, and Wisconsin), the whole home generally gets a new basis under 26 U.S.C. § 1014(b)(6). That applies if at least half of the community interest is included in the deceased spouse’s estate.

Here’s an example with stated assumptions. A couple bought a home for $200,000 decades ago. They held it as joint tenants in a common law state, and it was worth $1.2 million when the husband died. She sells for the same price, and the sale costs are ignored.

Her new basis is $700,000, which leaves a $500,000 gain. If she sells within the window, she excludes the full gain. If she sells after it closes, $250,000 becomes taxable.

Move the same house to a community property state and the basis resets to $1.2 million. Her gain is $0, so the exclusion amount barely matters. Long-time owners in common law states face higher stakes, and national prices keep rising. The Case-Shiller index reached a five-year high of 337.3 in July 2026, up 1.9% from a year earlier.

That two-year window is one of a handful of IRS rules that can quietly cost a retiree six figures if the date slips by unnoticed. We counted nine of them and put the full map in a free report: The Retiree’s Tax Trap Map.

Filing Status Runs on a Separate Clock

For the year your spouse dies, you can file a joint return if you don’t remarry before the year ends. For the 2 years after that, you may be able to file as a qualifying surviving spouse, which keeps joint tax rates. You only qualify if your home is the main home of a dependent son, daughter, stepson, or stepdaughter. That clock counts tax years. The home-sale window counts from the date of death. Many survivors mix up the two rules.

Steps to Take Before Listing the House

1. Document the home’s value on the date of death, ideally with a professional appraisal, since that value sets the new basis.
2. Write down the window’s closing date, the second anniversary of the death, when you’ll see it.
3. Gather records of improvements, because they still add to basis.
4. Talk with a tax professional before listing if the gain could be large.

One Date Worth Writing Down

Grief deserves the year that friends and family recommend, but before that year starts, mark the second anniversary of your spouse’s death on your calendar. A closing by that date can shelter up to $500,000 of gain. A closing after it caps the exclusion at $250,000.

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