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Dear Mr. Feichthaler,
My husband and I moved here 12 years ago for our retirement and have had a wonderful life here. Unfortunately, Bill died two months ago after a short battle with lymphoma. Bill always wanted to move to Florida, and he felt buying back in 2011 would be good value. Well, he was right, and now our house is worth a lot more than we paid for it. I plan to sell the house and move back to Michigan to be nearer my kids and grandchildren, but I am really worried about the tax consequences of selling. Will I owe the IRS a lot of money?
-- Jane L.
Dear Jane,
First, my sympathies for your loss. Cancer continues to bring so much grief to so many, and I am sorry Bill's life was shortened because of it. It sounds like you had a wonderful retirement here, and I trust you have a lot of fond memories.
Bill was right about buying at the right time. Prices have seen a steady climb over the past 10 years, and those gains have accelerated over the past three years. The IRS typically taxes all income, including gains on real estate, on a worldwide basis. In the case of primary residence, the IRS allows for an exclusion of $250,000 of gains per person on the sale of homestead. That amount increases to $500,000 for a married couple. The question will be how high your gains are, and how much of an exception is available to you with the passing of Bill.
Happy to report a bit of good news in that regard. If you sell your house within two years of Bill's death, you will be eligible to take the exclusion for both you and Bill, leading to an exclusion of $500,000 of gains. Remember, this is an exclusion on the profit on the sale of the property, not the sales price itself. As an example, if you were fortunate enough to buy a house in 2011 for $200,000, and it now worth and you sell it for $650,000, you would have a profit of $450,000. The entire amount of profit would be excluded, and you would pay no federal income tax on the sale.
I hope this provides you with some good news during a very difficult time. Your decision to purchase here when you did was a fortuitous one, and I wish you the best as you spend more time with your family.
Eric P. Feichthaler has lived in Cape Coral for over 35 years and graduated from Mariner High School in Cape Coral. After completing law school at Georgetown University in Washington, D.C., he returned to Southwest Florida to practice law and raise a family. He served as mayor of Cape Coral from 2005-2008, and continues his service to the community through the Cape Coral Caring Center, Cape Coral Museum of History, and Cape Coral Kiwanis. He has been married to his wife, Mary, for over 20 years, and they have four children together. He earned his board certification in Real Estate Law from the Florida Bar. He is AV Preeminent rated by Martindale-Hubbell for professional ethics and legal ability, and is a Supreme Court Certified Circuit Civil Mediator. He can be reached at eric@capecoralattorney.com, or 239-542-4733.
This article is general in nature and not intended as legal advice to anyone. Individuals should seek legal counsel before acting on any matter of legal rights and obligations.