Surviving spouses who sell the family home within two years of the death, and have not remarried, can keep the larger home-sale tax exclusion that married couples get. That means up to $500,000 of profit can be excluded from tax instead of the usual $250,000 for a single owner. The rule comes from the tax code and is explained in IRS Publication 523.

The IRS publication says a surviving spouse “may be able to increase” the exclusion from $250,000 to $500,000 when certain conditions are met.

The four conditions the IRS sets

Publication 523 lists four conditions for the $500,000 amount. The sale must happen within two years of the spouse’s death, and the surviving spouse must not have remarried at the time of the sale. Neither spouse can have used the exclusion on another home sold less than two years before this sale.

The fourth condition is the ownership and residence test. The surviving spouse can count time when the late spouse owned and lived in the home, as long as there has been no remarriage. The general test is 24 months of ownership and 24 months of residence in the five years before the sale.

The statute says the same thing in legal language. Section 121 of the tax code applies the $500,000 figure to an unmarried individual whose spouse is deceased on the date of the sale, as long as the sale is not later than two years after the date of death.

So the question for a widow or widower thinking about selling is where the two-year clock stands. A sale on the day before the second anniversary of the death qualifies for the larger amount, and a sale a week after that date falls back to $250,000. Anyone who has already remarried before closing is also out of the larger amount.

What changed this year: Social Security and Medicare change every year, and nobody sends you a memo. The Retirement Money Brief breaks down what changed and what to do.

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What the $250,000 and $500,000 limits mean in dollars

The IRS explains in Tax Topic 701 that a seller can exclude up to $250,000 of gain from the sale of a main home, or up to $500,000 for a married couple filing a joint return. The topic page was last reviewed on Oct. 12, 2026. It also requires that the home was owned and used as a residence for at least 24 months in the five years before the sale.

Here is how the numbers work. Take a house bought decades ago for $150,000 and sold for $620,000, which leaves a gain of $470,000 before selling costs. With a $250,000 exclusion, $220,000 would be taxable gain. With the $500,000 surviving spouse exclusion, the whole gain is excluded.

That is only an illustration, and the real gain depends on the improvements made over the years, the selling costs and the basis. The basis matters in a second way after a death. Publication 523 says that for jointly owned property, the new basis for the interest the spouse owned is its fair market value on the date of death. That raises the starting point for figuring gain and can shrink the profit.

Reporting the sale on the return

A sale does not always need to be reported. Tax Topic 701 says it must be reported if the seller received a Form 1099-S, even when all of the gain is excludable, and also when not all of the gain can be excluded. The sale goes on Form 8949 and then Schedule D of Form 1040.

Filing status in the year of the death is a separate question. In Publication 559, which covers survivors and executors, the IRS says a surviving spouse can file a joint return for the year of death. The same publication says a joint return with the late spouse cannot be filed if the surviving spouse remarried that year.

When the two-year window is not enough

Some surviving spouses cannot sell inside two years. An estate may take time to settle, a house may need repairs before it will sell, or a widow or widower may simply not be ready to leave. In those cases the exclusion falls back to the $250,000 limit for a single owner, as long as the usual ownership and residence tests are met.

The rule on remarriage also deserves attention. The surviving spouse who remarries before selling loses the extra $250,000 for that sale. A person who is planning to remarry and sell in the same year can compare the timing of both events with a tax professional before setting a closing date.

What changes with the timing is how much of the profit stays out of taxable income, and how any taxable gain feeds into other parts of the tax picture.

Selling a home after a spouse’s death and unsure how the gain will land?

A gain that is not excluded does not stay in its own box. It becomes part of the income on the return, and that can change how much of a Social Security check is taxed and where a Medicare premium surcharge kicks in. A missed date on the two-year clock turns a $500,000 exclusion into $250,000.

The story’s question is a home sale, and the related job is keeping the whole retirement tax picture in order afterward. The Retirement Tax & Withdrawal Planner includes four calculators (provisional income, IRMAA tier, RMD schedule, Roth bracket fill) and the account withdrawal order for deciding which money to spend first. Part 2 walks through whether Social Security is taxed.

Get the calculators for the tax year a home sale lands in from the Tax & Withdrawal Planner →

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• 17 Medicare Money Moves Now That Part D Caps at $2,400

This article was produced with AI assistance and edited for accuracy against the sources linked above.