Exemption on home when spouse dies

Q: I have been told that one way to retain the $500,000 joint (spouse) capital-gains tax exemption on the profit from the sale of your primary residence during the calendar year of your spouse's death is for the surviving spouse to have a written community-property agreement before the death. Is this true?

A: Presuming the couple jointly owned the home, there's no need to have a formal community-property agreement because Washington law assumes it is community property, explained Robert Christopfel, a Seattle certified public accountant.

The $500,000 capital-gains joint tax exemption ends when the spouse dies, and the surviving spouse then has a $250,000 exemption. However that may not be an issue because the home's "basis" is adjusted to market value at the time of the spouse's death, Christopfel noted.

Here's what this means. Say, a couple purchased a house 30 years ago for $100,000. That amount is the "basis" on which capital-gains tax is calculated.

Now let's say that just as they're about to sell the house, now worth $500,000, one spouse dies. The remaining spouse has a $250,000 capital-gains exemption — not enough to cover the $400,000 profit. (This is a rough example; various factors influence the basis amount.)

However, upon the spouse's death, the property automatically gets a new "stepped-up basis" to the $500,000 market value. So selling then would trigger no capital-gains tax.

Christopfel recommends that surviving spouses get a statement of market value soon after a death if they plan to hold onto the house. "You don't have to go to the extent of a full appraisal," he said.

Getting a real-estate agent to give a written estimate of the home's worth should be enough, he said. That could protect the surviving spouse in case the house appreciates significantly in the future.

Q: I'm dubious of the monthly home-sales numbers you publish because they come from real-estate agents who have something to gain by inflating prices to make things look rosier than they are. Why should we trust them?

A: The Northwest Multiple Listing Service compiles local housing-market statistics primarily as a service to its members within the real-estate industry, noted MLS spokeswoman Cheri Brennan. It provides an overview to the news media as a public service.

"The numbers we report from closed sales are reported from actual prices, based on the documents the buyer and seller agreed to," Brennan explained.

They must be reported by the end of the next day after the transaction has closed, and real-estate agents who falsify the facts are subject to disciplinary action, she added.

Potentially it could be worse than that. Real-estate agents are paid a percentage of the sales price; reporting a higher than true price could leave them open to a fraud charge.

Brennan stressed that the MLS numbers aren't a complete picture of all sales transactions — just those handled by members. But the MLS is the only source of local monthly neighborhood statistics: the number of homes on the market, pending sales, closed sales and the percentage change in those statistics over time.

There's no way to independently verify the MLS's sales numbers because no one else compiles them exactly the same way. However a California firm, DataQuick, does have some sales statistics, which it gathers from county recorders' offices.

DataQuick reports more sales than the MLS does because it includes home purchases that aren't handled by real-estate agents, such as for-sale-by-owner transactions.

Here are some May sales numbers for King County you can use to decide if the MLS numbers are in the ballpark.

The MLS lumps new and resale home sales together. It recently reported that 2,881 single-family homes sold in May; their median price was $469,000.

DataQuick breaks out resale single-family home sales (and lumps new house and new condo sales together). It reported that 2,314 resale houses sold; their median price was $455,000.

Q: Why have the values at Echo Falls Golf & Country Club not demonstrated the same increases as the rest of Snohomish County? This is the site of a previous Street of Dreams (the annual luxury-home tour).

A: It's normal for appreciation to vary widely, by neighborhood, throughout a county. This is caused by local market factors, such as how close the area is to freeways and jobs. So the fact that an area is appreciating less than the county as a whole isn't surprising or unusual.

Barb Athanas, an agent in Windermere Real Estate's Mill Creek office, says the varied nature of the mostly rural Echo Falls area northeast of Woodinville may be affecting its appreciation.

"In Echo Falls, there are beautiful golf-course homes, and then it's like a tree ring," Athanas said. "You go out a little further and a little further and you've got pieces of property that have mobile homes that aren't worth a dime. The value is in the land."

By comparison, homes now for sale in the country-club area are luxury-class with price tags to match: $800,000 to $1.35 million.

A lack of amenities, such as supermarkets and medical offices, also affects that neighborhood's desirability.

"Until you can get a big developer to come in and put in a Safeway or QFC it won't grow," Athanas said, adding that another golf-course community, nearby Mill Creek, "didn't even start to grow until there were those conveniences out there."

Home Forum answers readers' real-estate questions. Send questions to Home Forum, Seattle Times, P.O. Box 1845, Seattle, WA 98111, or call 206-464-8510 to leave a question on a recorded line. The e-mail address is erhodes@seattletimes.com. Sorry, no personal replies. More columns at www.seattletimes.com/columnists.