In every state, but community property states, spouses are considered joint tenants with rights of survivorship (JTROS). The surviving spouse may receive a step-up in basis for half the property when their spouse dies. The other half of the increased value would be included in the deceased spouse's estate.
Beginning on January 1, 2008, the Mortgage Forgiveness Debt Relief Act of 2007, (Public Law No. 110-142) allows a surviving spouse up to two (2) years from their spouse's date of death of to exclude up to $500,000 of gain from the sale of their primary residence.
Community property with right of survivorship: A husband and wife or registered domestic partners jointly own property until one spouse/partner dies, at which point the surviving spouse/partner automatically absorbs the deceased spouse's/partner's ownership interest in the property.
In community property states (such as Arizona, California, Idaho, Louisiana, Nevada, New Mexico, Texas, Washington and Wisconsin), property acquired during the marriage is generally considered community property and is owned equally by both spouses.
For a community property in California, it depends upon when and how their spouse acquired the property. The law asserts that all property purchased during the marriage, with income that was earned during the marriage, is community property.
If your surviving spouse isn't on the mortgage, federal law provides protections allowing them to assume the mortgage and keep the home. This is assuming they (and not someone else) inherit the property.
In many cases, the spouse can inherit your house even if their name was not on the deed. This is because of how the probate process works. When someone dies intestate, their surviving spouse is the first one who gets a chance to file a petition with the court that would initiate administration of the estate.
If your spouse built up entitlement to the State Second Pension between 2002 and 2016, you are entitled to inherit 50% of this amount; PLUS. If your spouse built up entitlement to Graduated Retirement Benefit between 1961 and 1975, you are entitled to inherit 50% of this amount.
This means that, generally speaking, a widow or widower who sells their home within two years of their spouse's death may not need to pay capital gains tax on the sale of their home.
Qualifying widow or widower
Surviving spouses with dependent children may be able to file as a Qualifying Widow(er) for two years after their spouse's death. This filing status allows them to use joint return tax rates and the highest standard deduction amount if they don't itemize deductions.
Under federal tax law, executors of estates of married decedents can elect to transfer the deceased spouse's unused estate tax exclusion to the surviving spouse. This “portable” exclusion is known as the deceased spouse unused exclusion (DSUE).
A surviving spouse who sells their home within two years also may not have to pay any capital gains tax on the sale. If it has been more than two years after their partner's death, the surviving spouse can exclude only $250,000 of capital gains.
Examples of Assets That Do NOT Step-Up in Basis
401(k), 403(b), 457 employer-sponsored retirement plans and pensions. Real estate that was gifted prior to inheritance.
When you inherit property, you generally receive an initial basis in property equal to the property's FMV. The FMV is established on the date of death or on an alternate evaluation date six months after death. This is often referred to as a "stepped-up" basis since the basis is typically stepped up to FMV.
Unless spouses had signed a valid prenuptial or postnuptial agreement, community property generally will be divided equally between the spouses when one spouse dies.
Informing family members, friends, loved ones, employers, and family advisors about a spouse's passing will be one of the first things to do. It is recommended to delegate this responsibility to a trusted friend or family member to have one central point of contact for communications and logistics.
If your husband had no will, and there is no deed of the home to you, the law of intestate (“no will”) succession should apply. Therefore, the sale proceeds from the house would be divided 50% to you as the surviving spouse and 50% to your late husband's two sons as children from a prior marriage.
If your spouse dies, do you get both Social Security benefits? You cannot claim your deceased spouse's benefits in addition to your own retirement benefits. Social Security only will pay one—survivor or retirement. If you qualify for both survivor and retirement benefits, you will receive whichever amount is higher.
Inheritance rights depend on state law and if the decedent had a will or trust. Marital property generally transfers automatically to the surviving spouse. Separate property is divided according to the deceased person's will or intestate laws if there is no will.
If the property needs to go through the probate court process, the house can stay in a decedent's name until the probate process has been completed and ownership of the property has been transferred.
Most property you or your spouse got during your marriage is marital property. If there is a title or deed, it does not matter whose name is on it. It is still marital property unless it was a gift or inheritance. If something is marital property, it is owned by both of you.