A friend of mine owned two homes. Can they sell one and payoff the other without incurring taxes?

Question

Hi there, a friend of mine owned two homes with mortgages on both. He lived in one home (Primary Residence) and his wife (Works for a non-profit company) goes and works out of city for two days a week and she lives in that second home while she is out of town. Recently, the friend died and his wife wants to sell one house and use the equity to pay-off the mortgage on the other house. Will she have to pay taxes or is there some kind of survivorship/death laws that help a widow out? They live in Ventura County, CA

Thanks!

Answer 1

From a tax perspective...he would be much better off if he paid off mine

Answer 2

Nope, she'll end up being liable for the taxes on the income from the equity in the house she sells.

However, I'm sure a creative accountant can bury a LOT of that in the exemptions that come from transfer of properties at the time of death.

And she does end up with the other house, far closer to if not actually paid off.

Answer 3

If she sells the home that is her primary residence (the first home) then she wouldn't have to pay tax on the sale if she owned in it for two of the five years immediately prior to the sale, and lived in it AS HER PRIMARY RESIDENCE for two of those same five years as long as the gain was under $250,000 - $500,000 if she sells the same year as he died, since she could still file a joint return that year. If the gain was over that amount, she'd pay tax only on the amount over those limits.

The house she stays at for 2 days a week is NOT her primary residence, so if she sells that one, she'd have to pay tax on the gain.

Answer 4

Spot ON Judy