Tax considerations for widows

5 Tax Tips for Widows


Losing a spouse is one of the most difficult transitions anyone will face – not only for the range of emotions you feel, but also for the new realities you face. You are now responsible for the household activities your partner managed, which may include paying the taxes.

As you get your paperwork in order for April 15th, keep in mind that your marital status affects your taxes, and there are tax breaks for qualifying widows that may help, such as:

You do not have to declare life insurance proceeds on your tax return. Life insurance proceeds are free from income tax, but what if you can’t find your spouse’s policies? The American Council of Life Insurance can help you locate them; contact them for a policy search form.

You may be able to file a joint tax return. Widows may file a joint return for the year of their spouse’s death. If you have a dependent child living at home, you may have an additional two years to file a joint return.

If you’re named as the beneficiary on your spouse’s IRA, you may be able to claim it as your own. For a traditional IRA, this means you do not have to start taking required minimum distributions (RMD) until you turn 70 ½. However, if your spouse did not take his or her RMDs, you may need to do so by the end of the year to avoid a penalty.

The tax basis of assets inherited from your spouse are ‘stepped-up’. You can increase the tax basis (the value of an asset used for calculating a gain or loss) of inherited assets, such as real estate or investments, to their fair market value as of the date of, or six months after, the death of your spouse, to reduce capital gains.

You may be entitled to the $500,000 tax-free home sale exclusion. When you sell your principal residence, the profit you make is considered a taxable ‘capital gain.’ Single people are allowed to exclude $250,000 of profits from capital gains taxes, and those married (and own the home jointly) can exclude double that. If you sell your family home within two years of your spouse’s death and have lived there for two out of the last five years, you may be able to take the larger deduction.

Your Luma Wealth advisor can help guide you through this difficult transition and work with your accountant to help you benefit from available tax breaks. When you’re ready, Luma Wealth offers the support of a caring and knowledgeable community to bond with, learn from and share your journey.

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