Q&A

Q&A: Widow may be eligible for home sale tax relief

July 1, 2025 By Liz Weston 1 Comment

Dear Liz: My late husband and I bought my present home in 1969. I am now 80. From what I understand, my widowed status does not make any difference in regard to the home sale exemption. His death means that when I want or need to sell the house, I lose out on half the $500,000 home sale exemption we otherwise would have received. I have not discovered any exceptions for the elderly widow or widower. Does such a relief exist?

Answer: If you sell the house within two years of a spouse’s death, you can qualify for the full $500,000 home sale exclusion, assuming you meet the other criteria for this tax break, such as owning and living in the home as your primary residence for at least two of the past five years, says Mark Luscombe, principal analyst for Wolters Kluwer Tax & Accounting. This assumes the surviving spouse has not remarried and neither spouse claimed the exclusion within two years before the sale.

If more than two years have passed, you still may get more tax relief than you think. In most states, when a spouse dies, one-half of the home gets a favorable “step up” in tax basis to the current market value. In California and other community property states, both halves of the house get this step up.

Let’s say you and your husband bought your home for $25,000 in 1969 and spent $75,000 on home improvements over the years, creating a tax basis of $100,000. Let’s further say the house was worth $600,000 when he died. In most states, your half of the house would retain its tax basis of $50,000. His half would be stepped up to $300,000, or half the then-current market value. Together, the tax basis would be $350,000. If you sold the house for $650,000, your home sale profit would be $300,000. You could subtract the $250,000 exemption from that, leaving you with a $50,000 capital gain.

If you live in a community property state, however, your tax basis would be $600,000 after your husband died, since both halves got the step-up. If you sold for $650,000, your exemption would more than offset the $50,000 profit and you would owe no capital gains taxes.

Q&A: The pros and cons of rewards cards with high interest rates

July 1, 2025 By Liz Weston Leave a Comment

Dear Liz: I expect to travel to Europe in the next few months. I applied for a new credit card to take advantage of its “no foreign transaction fees” policy. With a credit score of 740, I figured I would get a decent rate. Today I learned that I’m approved with a rate of 29%, which seems very steep. I want to turn this down rather than pay that rate. How do I do that, and what will the effect be on my credit score?

Answer: Don’t close the card. Rethink your strategy. You most likely got a rewards card, since those are typically the ones that don’t charge for foreign transactions. Rewards cards usually have high interest rates, so the only smart way to use one is as a convenience: Charge only what you can afford to pay off when the bill comes. Ideally, you’ll have saved for this trip so that won’t be a problem.

If you do wind up with a balance, consider transferring the debt to a low-rate card. But that, too, needs to be paid off relatively promptly, since low rates are typically teaser rates that expire after a few months.

Generally it’s better to borrow only for something that can grow in value over time. A reasonable mortgage makes sense, because a home typically appreciates. A moderate amount of student loan debt can pay off in higher incomes.

If you must borrow for something that doesn’t appreciate, such as a car, opt for the shortest possible loan to minimize the interest you pay. Avoid borrowing for vacations and travel, since those should be paid for out of your current income.

Q&A: When is the right time to start simplifying your finances?

June 23, 2025 By Liz Weston 3 Comments

Dear Liz: You recently answered a question about closing credit cards and mentioned the “mental load” of managing too many cards. That got me thinking about when is the right time to start simplifying my finances. I have lots of rewards credit cards and have opened several bank accounts to get bonuses, but I wonder at what age I should start consolidating so everything’s easier to track.

Answer: Simplifying our finances can allow us to better monitor our accounts, helping to avoid mistakes and fraud. Reducing the number of accounts we have also makes it easier for our trusted people to take over for us, should we become incapacitated.

But consolidating gets particularly important as we age and start to face cognitive deficits. Our financial decision-making abilities peak in our 50s, after all, and can really drop off in our 70s and 80s.

You can get ahead of this curve by consolidating accounts as you go along. When you leave a job, for example, consider rolling your old retirement account into your next employer’s plan or an IRA so that you don’t lose track of the money. If you’re thinking of opening a new bank account, consider whether there’s an old one you can close. Shuttering credit card accounts can affect your credit scores, so open new accounts sparingly and think about closing any that you’re not using, particularly if they’re newer or lower-limit cards.

Your 60s may be a good time to get serious about winnowing the number of accounts and institutions you’re juggling. Many people find it’s much easier to have one bank, one brokerage and a few credit cards than to have accounts scattered across the financial landscape.

Q&A: Filing a tax return after a parent dies

June 23, 2025 By Liz Weston Leave a Comment

Dear Liz: My mother’s only income was Social Security. Her accountant told her many years prior to her passing that she didn’t need to file a tax return. I was the executor of her trust and told the attorney I hired to help settle the estate that I would file her final tax return. I never did. That was 10 years ago. Now I feel that I should have filed it back then and am wondering if I should do it now or forget about it.

Answer: If you still have access to her paperwork, you can review her bank statements to see if there is any indication her income climbed enough in her last years to require filing an income tax return. If so, you can consult a tax pro about next steps.

But you’re probably fine, says estate planning attorney Jennifer Sawday in Long Beach.

If your mother was under the threshold for filing an income tax return, there would have been no reason to file a final return after she died, Sawday says.