Selling the House After Your Spouse Dies in New Jersey: The 2-Year Rule and What Else to Know

If you and your spouse owned the house as tenants by the entirety, it's already yours: in New Jersey it passes to the surviving spouse without probate and without a state inheritance tax waiver. If you sell within two years of your spouse's death and haven't remarried, IRS rules may let you exclude up to $500,000 of gain instead of $250,000, so the date is worth knowing before you decide anything.

I'm Dennis Mark Interdonato with The Dennis Mark Group at Keller Williams Realty Ocean Living. I'll say what I'd tell anyone in Monmouth or Ocean County in your position: there's no prize for selling fast. Get the facts, put the right date on the calendar, and decide when you're ready.

Who owns the house after a spouse dies in New Jersey?

It depends on how the deed was written:

• Tenants by the entirety. The Ocean County Surrogate's planning guide says real estate owned by spouses or domestic partners as tenants by the entirety becomes the sole property of the survivor.
• Joint tenants with right of survivorship. The same guide says a jointly owned interest with survivorship becomes the survivor's.
• In your spouse's name alone. Then the house goes through probate. The Monmouth County Surrogate says a will is probated when the person had assets in their name only. If there's no will, the Monmouth County Surrogate's guide lists the spouse first in line to apply as administrator.

The deed answers the question. If you can't find it, the estate's attorney or a title company can get a copy.

Do I need a New Jersey inheritance tax waiver to sell?

Not for a house held as tenants by the entirety. The NJ Division of Taxation's Form L-9 instructions say no waiver is needed for that property and none will be issued, and its general information sheet, Form O-10-C, says it need not be reported. A spouse is also a Class A beneficiary, which the Division lists as exempt from inheritance tax. If the house was held some other way, the attorney will tell you what the Division needs.

What is the 2-year rule for a surviving spouse?

It's an IRS rule about the home sale exclusion. IRS Publication 523 says a surviving spouse may take the higher $500,000 exclusion, instead of $250,000, if all of these are true:

• you sell within 2 years of your spouse's death;
• you haven't remarried at the time of the sale;
• neither you nor your late spouse took the exclusion on another home sold less than 2 years before this sale; and
• you meet the 2-year ownership and residence requirements, counting your late spouse's time if needed.

That last point matters too. Publication 523 says a surviving spouse who hasn't remarried may count any time the late spouse owned and lived in the home toward the ownership and residence tests.

The date to know is two years from the date of death. Whether the higher exclusion makes a difference for you depends on your numbers, so take this to your accountant before you pick a listing date.

How does a spouse's death change the tax basis of the house?

For a jointly owned home, part of it steps up. Publication 523 says that if spouses owned the home as tenants by the entirety or joint tenants with right of survivorship, each is considered to have owned half. The half that belonged to the spouse who died takes a new basis equal to its fair market value on the date of death, and the survivor's half keeps its original basis.

The IRS gives an example: a home with an adjusted basis of $50,000 and a fair market value of $100,000 on the date of death gets a new basis of $75,000, which is $25,000 for half the old basis plus $50,000 for half the market value. That's why a date of death value for the house is useful. I can give your accountant my market evaluation as a starting point, and they'll decide whether a formal appraisal makes sense. Start with my home value tool.

What about property tax relief and other paperwork?

The Division of Taxation's guide, Losing a Spouse/Civil Union Partner, explains how a surviving spouse handles the Senior Freeze and the Homestead Benefit. One point worth knowing if you're thinking about staying a while: for the Senior Freeze, if the surviving spouse wasn't on the deed but inherited the property, the Division treats the survivor as an owner for as long as the late spouse was. The guide covers filing status and other state tax steps too.

If there's a reverse mortgage, different rules apply to a spouse who wasn't on the loan. Read what happens to a reverse mortgage when the owner dies before anything else.

Should you sell now or wait?

I tell people what they need to hear, not what they want to hear, and here it is: don't let anyone rush you, including me. Some things are worth weighing:

1. The two-year date under Publication 523, if the exclusion matters for you.
2. The cost of the house: taxes, insurance and upkeep you're now carrying alone.
3. What the house needs. I spent years building and remodeling New Jersey homes. I'll show you two plans, sell as-is or make a few updates first, with what each should bring.
4. Where you'd go next. If the next home is smaller or on one level, my downsizing page covers selling and buying at the same time.

If any of the house was in your spouse's name alone, the Estate & Probate Guide walks through the estate side, and you can see how I handle estate home sales.

Frequently Asked Questions

Does a house go through probate when a spouse dies in New Jersey?

Not if it was held as tenants by the entirety. The Ocean County Surrogate's guide says it becomes the survivor's sole property. A house in the late spouse's name alone does go through probate.

Can a surviving spouse get the $500,000 exclusion?

IRS Publication 523 allows it if you sell within 2 years of your spouse's death, haven't remarried, and meet the other conditions. Your tax professional can confirm.

Do I have to pay New Jersey inheritance tax on the house?

A spouse is a Class A beneficiary, which the NJ Division of Taxation lists as exempt, and a house held as tenants by the entirety needs no waiver.

Do I have to sell within two years?

No. The two years only matter for the IRS exclusion. It's your home, and the timing is your decision.

This is general information, not legal, tax or lending advice. Talk with your attorney and a tax professional about your situation.

About the author

Dennis Mark Interdonato is a REALTOR® and Master CDRE® who leads The Dennis Mark Group at Keller Williams Realty Ocean Living in Point Pleasant, NJ, helping buyers and sellers throughout New Jersey make their next move, with Monmouth and Ocean County as home base. Read more about Dennis Mark.

Keep reading

• Does a house have to go through probate in New Jersey?
• Capital gains tax when you sell an inherited house
• When I sell my home, do I pay tax?
• Have a question this didn't answer? Send it to Dennis Mark.