Widowed homeowner worries about losing home-sale tax break

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DEAR BOB: My wife died last August after a long illness. I plan to eventually sell our longtime house because it is far too big for me alone. But my daughter says if I don't sell by Dec. 31, 2004, I lose my $500,000 tax exemption. Is this true? – Raymond H. DEAR RAYMOND: Please don't despair. This is a technical problem with Internal Revenue Code 121 because 2004 is obviously the last tax year you can file a joint income tax return with your late wife. Purchase Bob Bruss reports online. As you probably know, a married couple filing a joint income tax return is entitled to a principal residence sale tax exemption up to $500,000. Internal Revenue Code 121 requires them to have owned and occupied their home at least two of the last five years before its sale. However, if you and your late wife jointly co-owned your home, you probably inherited her half of the residence. That means you received a new "stepped-up basis" on her half of the home. If you live in a community property ...