The Time to Heal Act increases the capital gains tax exclusion for home sales by surviving spouses from $250,000 to $500,000 under specific conditions.
Tom Barrett
Representative
MI-7
The Time to Heal Act modifies tax law to provide relief for surviving spouses selling a primary residence. It increases the capital gains exclusion on the sale of a jointly owned home from \$250,000 to \$500,000, provided certain ownership and marital status conditions are met. This aims to ease the financial burden on those who have recently lost a spouse.
Time to Heal Act Doubles Home Sale Tax Exclusion to $500,000 for Surviving Spouses
The Time to Heal Act aims to fix a long-standing 'widow's penalty' in the tax code by increasing the capital gains tax exclusion for surviving spouses. Under Section 2, the bill raises the amount of profit a surviving spouse can keep tax-free when selling their home from $250,000 to $500,000. This change effectively allows a widow or widower to claim the same tax break that married couples receive, provided they haven't remarried by the end of the tax year in which the sale occurs. The new rules would kick in for any home sales starting in the first tax year after the bill is signed into law.
Leveling the Financial Playing Field
Currently, if a married couple sells their home, they don't pay taxes on the first $500,000 of profit. However, if one spouse passes away, the survivor often sees that tax-free limit drop to $250,000 unless they sell almost immediately. For a person who has lived in their family home for decades in a city where property values have skyrocketed—like a retired teacher in Seattle or a tradesperson in Denver—selling the house could trigger a massive, unexpected tax bill just as they are navigating a major life transition. This bill ensures that the $500,000 safety net remains intact, regardless of whether the sale happens right away or years down the road, as long as the ownership and use requirements were met before the spouse's death.
Clear Rules for a Fresh Start
To qualify for this expanded exclusion, the bill keeps things straightforward but specific. According to the text, the couple must have met the standard 'ownership and use' tests—meaning they owned and lived in the house as a primary residence for at least two of the five years leading up to the spouse's death. The only real 'catch' is the remarriage clause: if the surviving spouse remarries before the end of the year they sell the house, they lose access to this specific $500,000 'surviving spouse' bump. This provision is designed to provide a financial cushion for those truly on their own, helping them downsize or move closer to family without losing a chunk of their life savings to the IRS.