By Eric Berman, REALTOR®/SRES® | The Eric Berman Team at Compass
TL;DR:
Most people who have owned a Port Washington home for decades assume selling means a crushing tax bill, and for a lot of them that assumption is wrong — the federal exclusion on a primary residence covers a great deal of gain. But two things change the math more than anything else. Every improvement made over thirty years reduces the taxable gain, if there are records to prove it. And for a widow or widower, there is a two-year window after a spouse’s death during which the larger exclusion still applies. Miss that window and half of it disappears. None of this is a reason to rush a decision, but all of it is a reason to have the conversation with an accountant before picking a listing date.
The Fear That Keeps People in Houses They’ve Outgrown
There is a conversation that happens constantly in Port Washington, usually at a kitchen table, usually with a couple in their seventies who have been in the same house since their children were small.
They bought it for a number that sounds imaginary now. It is worth many times that. And somewhere along the way they concluded that selling would hand an enormous share of that difference to the government, so they have stopped seriously considering it.
For a good number of them, that conclusion is simply wrong. The federal government allows a married couple to exclude a substantial amount of profit on the sale of a primary residence — currently half a million dollars, and half that for a single person. Those amounts have not changed since 1997. To qualify, you need to have owned the home and lived in it as your main residence for at least two of the five years before the sale, which anyone who has been there thirty years clears without thinking about it.
So the first useful thing to know is that the tax bill people are imagining is often larger than the one that actually exists, and occasionally there isn’t one at all.
Why Your Profit Is Smaller Than You Think
Here is the part that costs people real money, quietly, because nobody warned them decades ago.
Profit is not the sale price minus what you paid. It is the sale price minus what you paid plus everything you put into the house. Capital improvements — the addition, the new roof, the kitchen renovation, the finished basement, the replacement windows, the new heating system — all add to what the IRS treats as your cost. Every dollar of improvement is a dollar that is not profit.
Over thirty or forty years in a house, that number is rarely small. It is routinely six figures. Which means a seller who tracked it carefully may owe far less than one who didn’t, on an identical house.
The catch is proof. Receipts, contracts, canceled checks, permits. Most people who did a kitchen in 1998 have no idea where that paperwork is, and some of it genuinely is gone. But it is worth a serious afternoon in the filing cabinet before assuming it’s lost, and worth asking contractors who are still in business whether they have records.
Ordinary repairs don’t count — painting, fixing a leak, replacing a broken appliance. It’s the work that improved the house or extended its life. An accountant will sort which is which, and that sorting is one of the highest-return hours a long-term owner can spend.
The Two-Year Window After Losing a Spouse
This is the most consequential thing in this post, and it is the thing almost nobody is told.
When a married couple owns a home together and one spouse dies, two things happen at once.
The first is that the value of the house gets partially reset for tax purposes. In New York, the deceased spouse’s half of the home is treated as though it were newly acquired at its value on the date of death. The surviving spouse’s half keeps its original cost. The practical effect is that a great deal of the appreciation that built up over decades simply stops being taxable.
The second is a clock. A surviving spouse can still claim the larger married exclusion — the full half million — but only if the sale closes within two years of the spouse’s death, and only if they haven’t remarried. After that, it drops to the single-person amount.
Consider roughly what that looks like. A couple buys in the early nineties for three hundred thousand and puts another hundred thousand into the house over the years. One spouse dies when the house is worth about a million and a half. The survivor sells for one-point-six.
Because of the partial reset, the taxable profit is around six hundred fifty thousand rather than the one-point-two million it would otherwise have been. Sold within two years, five hundred thousand of that is excluded. Sold three years out, only two hundred fifty thousand is.
Same house, same price, same family. A quarter of a million dollars of difference in taxable profit, created by nothing but the calendar.
Nobody should sell a home they want to keep because of a tax deadline. Grief has its own schedule and it does not take instruction. But a widow who is already thinking about moving, and who does not know this window exists, can lose a great deal of money by waiting another year for reasons that have nothing to do with money. That is worth knowing early, from an accountant, not from a stranger at the closing.
What Happens When the House Is Inherited
A related situation comes up often enough to mention, because the outcome surprises people in the opposite direction.
When a home passes to children after both parents are gone, its value is generally reset entirely to what it was worth at the date of death. If the family sells reasonably soon afterward, there is often very little taxable profit — because the profit is measured only from that reset value, not from what the parents paid in 1971.
This is the reverse of what most families expect. They assume inheriting a house that appreciated for fifty years means a devastating tax bill, and frequently it means close to none.
It also means a formal valuation as of the date of death is worth getting, and getting properly, because that number becomes the starting point for everything that follows.
New York Takes Its Share Too
One thing worth setting expectations on: New York does not have a separate, gentler capital gains rate. Whatever profit remains taxable after the federal exclusion is generally treated as ordinary income at the state level.
This matters mostly for people whose gain is large enough to exceed the exclusion — which, in a town where long-held homes have appreciated the way they have here, is not unusual at the upper end.
There is also a wrinkle for anyone who has already moved out of state when the sale closes. Sellers who have relocated before closing are generally required to make an estimated payment at the closing table, which affects the proceeds available that day even though it isn’t an additional tax.
Both of these are CPA questions, and both are better raised before a closing date is chosen than after.
Where to Start
Find the paperwork first. The original closing documents, and every record of improvement work over the years. This is the single most valuable thing a long-term owner can do, and it takes an afternoon.
Talk to an accountant before choosing a listing date — not after, and not at the closing. If there has been a death in the family, mention the date, because timing may matter more than anyone realizes.
If a spouse has died and the house hasn’t been formally valued as of that date, ask about it. That figure determines a great deal.
Get a realistic sense of what the house would actually sell for, since every calculation runs off that number.
And give the whole thing room. Nothing here requires a decision this month, and the people who handle it best are the ones who started asking questions long before they were ready to list.
The Honest Bottom Line
A great many Port Washington homeowners have talked themselves out of a move they wanted to make, based on a tax bill that was never going to be as large as they imagined.
The exclusion is generous, decades of improvements reduce the profit, and in the hardest circumstances the rules are kinder than people expect. What they are not is automatic. The records have to exist, and in one specific situation the calendar matters more than anyone would guess.
An hour with an accountant, early, is what turns all of this from a source of dread into a set of numbers you can plan around.
This post is general information, not tax or legal advice. Eric Berman is not an accountant or an attorney. Every situation differs, and the rules described here have conditions and exceptions that only a qualified tax professional can apply to a specific set of facts. Tax law changes; confirm current rules with a CPA before making any decision.
For homeowners starting to think about what a move might look like, a current look at Port Washington home values is one place to begin, and the options for staying in town are worth seeing before any decision is made.
FAQs
Will I owe a huge tax bill after owning my home for thirty years?
Often far less than expected, and sometimes nothing. A married couple can exclude up to half a million dollars of profit on the sale of a primary residence, and a single person half that, provided they owned and lived in the home for at least two of the five years before the sale. Those amounts have been unchanged since 1997. Profit is also measured after adding every capital improvement made over the years, which in a long-held home is frequently a six-figure reduction on its own. A CPA can run the actual number, which is usually smaller than the one people are dreading.
Do renovations I did years ago reduce what I owe?
Yes, if they were capital improvements and you can substantiate them. Additions, roofs, kitchens, bathrooms, windows, heating and cooling systems, finished basements — all of it adds to what the IRS treats as your cost in the home, which reduces the taxable profit. Routine repairs and maintenance generally do not count. The practical obstacle is proof: receipts, contracts, canceled checks, and permits. Before assuming records are gone, it’s worth a thorough look through old files and a call to any contractors still in business.
My spouse passed away. Does that change anything about selling?
Significantly, in two ways. When one spouse dies, the deceased spouse’s share of a jointly owned home is generally revalued to what the home was worth at the date of death, which eliminates a large portion of the accumulated gain. Separately, a surviving spouse can still claim the larger married exclusion, but generally only if the sale closes within two years of the death and they have not remarried. After that window the exclusion drops by half. Because the difference can be substantial, this is worth raising with a CPA early rather than later.
What if we inherited the house from our parents?
The outcome usually surprises families. An inherited home’s value is generally reset to what it was worth at the date of death, so profit is measured only from that point forward rather than from what the parents originally paid. A family that sells reasonably soon after inheriting often finds there is little taxable gain despite decades of appreciation. Because that date-of-death value becomes the starting point for everything, obtaining a proper valuation as of that date matters.
Does New York tax the gain too?
Yes. New York does not apply a separate reduced rate to capital gains — profit that remains taxable after the federal exclusion is generally treated as ordinary income at the state level. This matters most for sellers whose gain exceeds the exclusion, which does happen with long-held homes in this market. Sellers who have already moved out of state before the closing also face an estimated payment collected at the closing table, which reduces proceeds available that day. Both are questions for a CPA before a closing date is set.
By Eric Berman, REALTOR®/SRES® | The Eric Berman Team at Compass
Eric Berman | Long Island & Queens Associate Broker | Compass
1468 Northern Blvd, Manhasset, NY 11030
(917) 225-8596 | eric@ericbermanre.com | theericbermanteam.com
