Congrats to Jerome Glasser, a 3rd-year law student in the Virginia Law Reader Program Sponsored by Juan Chardiet, Esq
“I’m a-livin’ in a box… I’m a-livin’ in a cardboard box…”
Lyrics to a real, 1987 song entitled: “LIVING IN A BOX” (Vere/Piggot)
Condolences on the death of your spouse;
Now get crackin’ on sellin’ your house;
Oh, you thought you’d retire…?
No! Like your spouse, your grace period’ll expire,
So get going, there’s no time to grouse!
The adage that “the only things sure in life are death and taxes” long ago became hackneyed. A twist on this notion, however, is the actual tax fact that in our American life, it is quite likely that your spouse will “bet the farm”, if you “buy the farm”…
You’ve worked hard, lived the American dream, got married, bought a house, fretted over finances, saved-up a nest egg, generally stressed out and unfortunately-you’ve just keeled over. It was a good life. Let’s say you’re the male breadwinner leaving a widow. Now the house is too big for your sole surviving partner–and filled with too many memories, as well, and she decides that she wants to sell. Guess what? The friendly IRS has already contemplated this situation! Incredibly, though, the IRS has perversely structured a policy that no reasonable person would have imagined possible, by setting up a de facto deadline for the grief-stricken surviving spouse to sell the couple’s primary residence within an arbitrarily established time frame in order to avoid draconically adverse tax consequences.
Just so that no one can say that the IRS doesn’t have a “heart”, apparently the powers-that-be in this august institution did see fit to modify this policy so that as of December 31, 2007, a surviving spouse could qualify for the up-to-$500,000 exclusion on sales and exchanges of the primary residence if the sale occurred not later than 2 years–rather than the original 1 year!–after the spouse’s death, provided the requirements for the $500,000 exclusion were met immediately before the spouse’s death and the survivor has not remarried as of the date of the sale. (Code Sec. 121(b)(4)). Prior to December 31, 2007, the up-to-$500,000 exclusion was available only if a husband and wife filed a joint return for the year of sale; thus, if the home was sold in a year subsequent to the year of a spouse’s death–when a joint return could no longer be filed–the surviving spouse could only get a maximum homesale exclusion for him or herself in the amount of $250,000.
Yes, unless your (now ex-)wife gets-a-move-on her plans to sell the house, she could wind-up getting socked with a heavy tax punch if the sale is not made prior to 2 years following your death. It should be emphasized that the measuring period is from the time of your death, and a sale or exchange in the second tax year following your death will not qualify for the relief provision if it is made more than 2 years from the actual date of your death.
Why is this? (Translation: This is not necessary!) If the IRS is actually willing to grant relief, it is borderline unconscionable to impose upon a grieving person the need to quickly make important life decisions, such as determining if he or she wishes to sell the couple’s primary residence, purchase or rent a new residence, or even move into a retirement community. It is unjust to burden a surviving spouse who typically is older, mentally frail, lonely and depressed, grappling with a new identity in the world, concerned about making every dollar count for the rest of his or her life, with the additional anxiety of having to figure out whether even to attempt to grab the “brass ring” of potential tax savings. The operative word in the previous sentence is “potential”, because even if the surviving spouse elects to try to sell the home in order to try to benefit from the current IRS policy, there is no guaranty that those efforts will ultimately yield a successful outcome…
Dangling the option of typically substantial tax savings in the face of a wounded person in order to unnecessarily induce prompt action might conceivably be interpreted as “sadistic”. Certainly, the “positive” spirit of the recent policy modification-which appears to be a concession to the ludicrous original 1-year time limitation-is lost in light of the continued existence of ANY time frame related to this circumstance. It seems clear that the IRS recognized that the 1-year time frame was unreasonable, so it modified the grace period to 2 years instead of acting as it should have by granting a lifetime relief provision to the surviving spouse; either hunt the prey, or confer upon it amnesty, because a “head start” extension in the hunt from 1 to 2 minutes neither grants solace to the prey, nor permits the hunter to be depicted in a positive fashion.
No suggestion is espoused that no tax be levied on the sale or transfer of the marital residence; this would be as imprudent as trying to deny the Reaper his due. Regulations ought to be structured, though, so that if the IRS does indeed recognize the appropriateness of extending a concession and wishes to do so, it should be offered absent any time constraints relative thereto.
If the IRS will not remedy this blatantly unfair policy, since death is often unforeseen, if I might put my future wife-if I can ever get one (I’m saving up now so I can get a really good one)-in the position of having to make the decision whether to sell our future marital residence within the acutely truncated period of 2 years after my death, I’m going to propose to her that we adopt one of two options, either: 1) we keep our home perpetually in sell-ready condition in anticipation of my unexpectedly kicking the bucket; or 2) we live together in a valueless, easily discardable cardboard box. To act otherwise would be simply inconsiderate.
