A Widow's Cost Basis

Written by Posted On Sunday, 26 March 2006 16:00

Last Monday, I wrote about a woman who purchased real estate with her husband in 1975. He died in 1983 and now his widow wants to sell this property. I wrote that to calculate her cost basis for tax purposes, she would add her personal basis (half of the original price) to her husband’s basis at the time of his death, that is, half the value of the property then.

An important case dealing with these facts has since been called to my attention. In Gallenstein v. U. S. (975 F.2d 286, 1992), the U.S. Court of Appeals for the 6th Circuit held that for property acquired prior to 1977, which was held jointly by husband and wife, the basis may be calculated differently, in a way that favors the taxpayer.

The formulas can be complex, but essentially, the case found that if all the money used to purchase the house came from the husband, then the widow would be entitled to a tax basis equal to 100 percent of the value of the house at the time of her husband’s death.

This case affects only houses purchased before 1977 and held jointly by the spouses. But if you are widowed and your home falls into that category, discuss the Gallenstein case with a tax advisor.

For more on this subject see last week's article, "Housing Counsel: Don't Forget the Stepped up Basis. "

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Benny L Kass

Author of the weekly Housing Counsel column with The Washington Post for nearly 30 years, Benny Kass is the senior partner with the Washington, DC law firm of KASS LEGAL GROUP, PLLC and a specialist in such real estate legal areas as commercial and residential financing, closings, foreclosures and workouts.

Mr. Kass is a Charter Member of the College of Community Association Attorneys, and has written extensively about community association issues. In addition, he is a life member of the National Conference of Commissioners on Uniform State Laws. In this capacity, he has been involved in the development of almost all of the Commission’s real estate laws, including the Uniform Common Interest Ownership Act which has been adopted in many states.


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