If you bought your primary residence back in the 1960s or 1970s, there’s a good chance that you’ll be pushing the limits of the capital gains tax exemption when it comes time to sell.
There is an exemption of capital gains tax of $250,000 (single) or $500,000 (married) for a home that was your principal residence for at least two of the five years preceding the sale. If you bought your house for, say, $30,000, in the 1960s, it’s quite possible that it’s worth 10 or 20 times that amount now, resulting in the possibility of capital gains taxation.
If one of a married couple moves out, the $500,000 exemption is preserved by the other spouse as long as the absent spouse is still alive, providing the couple sells the house within 3 years of both moving out.
Do not add your heirs to the title of your home as a “joint tenant” with right of survivorship. That’s because your heirs inherit your original purchase price as their cost basis, whereas if they inherit the property through your will, the basis for them is stepped up to the fair market value of the home at the time of the inheritance, which will help them avoid capital gains tax when they sell it.
I am not a tax advisor, and am only recounting what I have been told by tax and estate-planning professionals. Consult your own tax professional before acting on anything I have written here.
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