Widow(er)’s Exemption

What it is

A widow(er)’s exemption provides tax relief to a surviving spouse after a partner’s death. Relief can come from federal rules (income, capital gains, estate tax treatment) and from state laws (commonly reduced property-tax assessments). To qualify for federal benefits, spouses must have been legally married; domestic partnerships and civil unions generally do not qualify.

Key benefits at a glance

• Ability to file as a surviving spouse (married filing jointly rules may apply for up to two years after the year of death if eligibility conditions are met).
• Stepped-up basis on inherited property—basis is adjusted to fair market value at the date of the deceased spouse’s death, which can reduce capital gains taxes when the property is later sold.
• Possible capital-gains exclusion on a home sale (surviving spouses meeting the ownership and use tests can generally exclude up to $500,000 of gain if other conditions are satisfied).
• State-level property-tax reductions in some jurisdictions for surviving spouses.
• Estate-tax marital deduction: assets passing to a surviving spouse are generally exempt from federal estate tax.

State-level exemptions (property tax)

State rules vary widely. A common form is a reduction in the taxable value of a home for a surviving spouse—for example, some states allow a fixed reduction in the property’s assessed value that lowers annual property taxes. These benefits often continue until the surviving spouse remarries or moves, but specifics (amounts, eligibility, application process) depend on the state and local taxing authority.

Federal relief and common rules

• Filing status: A surviving spouse may qualify to use married-filing-jointly tax rules for the year of death and, in many cases, for the next two tax years if certain conditions are met.
• Stepped-up basis: The deceased spouse’s share of jointly owned property typically receives a new basis equal to its fair market value at death. In community property states, the entire property often receives a stepped-up basis.
• Home-sale exclusion: If the surviving spouse meets the ownership and principal-residence tests (including special two-year rules related to the date of death), up to $500,000 of gain may be excluded from income for a qualifying sale.
• Retirement accounts and life insurance: Inherited IRAs and retirement plans have distinct distribution and tax rules; life insurance proceeds are generally income-tax-free to beneficiaries but may be included in the deceased’s estate for estate-tax purposes.

Same-sex couples and eligibility

Since federal recognition of same-sex marriages, legally married same-sex spouses are treated the same as opposite-sex spouses for federal tax purposes. However, a marriage must be legally recognized; simply living together, being in a domestic partnership, or having a civil union that is not recognized by the federal government does not qualify for widow(er) tax benefits.

Estate tax considerations

• Marital deduction: Transfers to a surviving spouse are typically excluded from federal estate tax.
• Exemption amounts and thresholds change over time; very large estates may be subject to federal estate tax after available exemptions are applied. Surviving spouses should consult current estate-tax rules and consider estate planning to manage potential future tax exposure.

Common questions

Q: Do unmarried partners get widow(er) tax benefits?
A: No. Federal tax benefits generally require a legal marriage; registered domestic partnerships and civil unions usually do not qualify.

Q: Will Social Security survivor benefits be taxed?
A: Possibly. A portion of Social Security survivor benefits may be taxable depending on the beneficiary’s other income.

Q: Does a surviving spouse always get a stepped-up basis?
A: Generally, yes for the deceased spouse’s share. Rules differ for joint ownership and community property situations.

Next steps

If you’re a surviving spouse, check state and local tax rules for property-tax exemptions, review federal filing options for the two-year window after a spouse’s death, and consult a tax or estate-planning professional about stepped-up basis treatment, IRA distribution rules, and potential estate-tax issues.