All property taxes are not alike. States offer all sorts of exemptions for homeowners so that two identical properties with different owners can end up with very different taxes. If one owner is a veteran, say, or has lived there several years, that's often all it takes to get a tax break. As a result, the transfer of ownership at death can have an impact on taxes.
Whether you keep your spouse's property-tax breaks depends on your state's rules. Texas, for example, limits how much property tax can rise year to year if a homeowner is older than 65. If he dies or sells the house, the property taxes reset to what a younger owner would pay. If you inherit the house from an over-65 spouse, you can keep the tax cap if you're at least 55. If you're under that age, you pay the higher rate. Other states have their own rules for how tax breaks transfer after death.
Capital gains tax on home sales is usually based on the difference between the sales and purchase price. When your spouse dies and you inherit his ownership share it's different. If you owned it as community property, you use the fair market value at the time of his death instead of the purchase price. If, say, you bought it for $150,000 and it's worth $250,000 when he dies, that reduces your gain on the sale a lot. If you don't own it as community property, only your spouse's half-share gets the step up in value.
If you earn any rental income from the property, owning it as a widow or widower may affect your taxes. Couples who file joint returns get the best tax rates of any filing status. Whether you file as head of household or single after your spouse's death, your income taxes may go up quite a bit. If you have a dependent child, though, you can file as a "qualifying widow or widower" which entitles you to use joint-return tax rates for the first two years after your spouse dies.
Removing the Name
Depending on circumstances, you may not have to take your spouse's name off the deed. If you and she were joint owners of the house, you automatically assume full ownership when she dies. Your state may not require you to formally change the deed. In Massachusetts, for example, you file a death certificate with the county deeds register. That shows anyone looking up ownership records that you became sole owner. If your spouse dies and you don't change the deed, that won't let you off for any tax increases.
- How Is Community Property Divided at Spouse's Death in Living Trust?
- Can You Do a Quitclaim on a FHA Mortgage?
- Is an Inherited House Taxable Income?
- What Is an Exemption to a Quitclaim Deed?
- How to Add a Husband's Name to the Deed or Leave the House to Him in a Will
- Transfer of an Equity Deed
- What Is a Non-warranty Deed?
- Can One Spouse Take Out a Second Mortgage?