Tax Aversion Therapies · for the widowed and the divorced
Diagnosis: one household became one person, the return went from joint to single, and the tax went up on the same income.
Prognosis: there are windows in the first two or three years that close quietly. Most people don’t know they were open.
There is no cure for the widow’s penalty. These are the therapies.
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A death or a divorce changes the filing status, and the filing status changes everything: the brackets, the standard deduction, the capital-gains thresholds, the senior-deduction and IRMAA lines, and the Social Security formula are all roughly half as generous for a single filer as for a couple. That is the widow’s penalty and the divorcée’s penalty, and it is permanent. What is not permanent are the transition rules: the last joint return, the two years of surviving-spouse status, the two-year and three-year house windows, the step-up, and the choices about the IRA and the pension that have to be made once and early.
This page gathers the therapies for both situations because they share the mechanism: a status that is about to get worse, and a short period to act while it is still good. Grief and divorce are the worst time to think about tax, which is why the list is short and the deadlines are specific.
Dose: the year a spouse dies, the survivor files a joint return for the whole year (unless remarried by December 31). For the next two years, a survivor with a dependent child at home uses the joint brackets and the $32,200 standard deduction as a qualifying surviving spouse. After that, single or head of household.
The last joint year is the last year of joint rates, and the year the deceased’s medical bills are deductible against joint income; it is the year to recognize income that would otherwise be taxed later as a single filer (next therapy). For a divorce, the equivalent window is the opposite: a decree final on December 31 makes both spouses single for the whole year; a decree final on January 2 gives one more joint return, if the two can sign one. Full articles: Understanding the Widow’s Penalty, Divorce and Taxes.
↑ Back to topDose: a surviving spouse keeps the $500,000 exclusion for a sale that closes within two years of the death; after that, $250,000. Anyone who moves out keeps the full exclusion for about three years; after that, none. Divorcing spouses who sell while both still own the house get $250,000 each; the one who keeps it gets $250,000 later.
For a widow in a long-held Front Range house, the two-year window plus the half step-up (next therapy) usually covers the entire gain; year three does not. For a divorcing couple with a house that has $600,000 of gain, a sale before the decree excludes it all; a transfer of the house to one spouse followed by a sale excludes $250,000. The timing is worth tens of thousands of dollars in both cases, and it is decided by a closing date. Full article: Selling Your Home.
↑ Back to topDose: the deceased spouse’s half of every jointly owned asset (the house, the brokerage account, the land) takes a new basis equal to its value at death; the deceased’s separately owned assets step up entirely. The survivor’s half keeps the old basis.
Nothing happens automatically. The broker keeps reporting the couple’s original cost on every share until told, in writing, with the date of death; a survivor who sells five years later without the step-up overpays on half the gain. Get a date-of-death appraisal for the house and a date-of-death statement from the broker within a few months. (Divorce is the opposite: property that moves between spouses keeps its old basis, so the spouse who takes the appreciated house is taking the gain too.) Full article: Inherited Property and the Step-Up.
↑ Back to topDose: a surviving spouse can roll the deceased’s IRA or 401(k) into her own (RMDs on her own schedule, 10% penalty if she takes money before 59½), or keep it as an inherited IRA (no 10% penalty at any age; RMDs delayed until the deceased would have reached 73). A survivor under 59½ who needs the money should keep it inherited; one who doesn’t should roll it. The choice can be made later; the rollover can’t be undone.
A 54-year-old widow who rolls her husband’s $600,000 401(k) into her own IRA and then needs $50,000 for the roof pays the 10% penalty on it; left as an inherited account, the same withdrawal is penalty-free. At 59½ she can roll the rest. The 2024 regulations also let a surviving spouse elect to be treated as the deceased for RMD purposes, using the more favorable table (verify the final-regulation spousal election mechanics). Full article: When a Loved One Dies.
↑ Back to topDose: in the year of death (joint return) and the two qualifying-surviving-spouse years, convert traditional IRA money to Roth up to the top of the joint 22% bracket ($211,400 of taxable income in 2026). From the first single year, the same income is taxed at 24% above $105,700.
A widow with $800,000 in traditional IRAs and $70,000 of other income has about $140,000 of 22% room on the last joint return. Converting it pays 22% now on money that would otherwise be taxed at 24% to 32% as a single filer, or at the children’s rates within ten years. The same logic applies to realizing a large capital gain or taking a distribution for a planned expense in the joint year rather than the single one. Full article: Roth IRAs.
↑ Back to topDose: a 401(k) or pension divided by a qualified domestic relations order moves to the former spouse tax-free; cash taken by the former spouse directly from the plan under the QDRO is taxable but not penalized, at any age. Once rolled to an IRA, the exception is gone.
A spouse receiving $300,000 of a 401(k) who needs $60,000 for a down payment should take the $60,000 from the plan before rolling the rest; taking it from the IRA afterward costs $6,000 in penalty. IRAs are divided by the decree without a QDRO, as a trustee-to-trustee transfer, and carry no penalty exception. A 401(k) cashed out and handed over as a check is a taxable distribution to the employee plus the penalty, and it happens every year. Full article: Splitting the 401(k).
↑ Back to topDose: the parent with more nights claims the child; a signed Form 8332 hands the other parent the $2,200 child tax credit and nothing else. Head of household, the earned income credit and the dependent care credit stay with the custodial parent every year.
Decrees that alternate “the exemption” usually mean the credit, and the custodial parent keeps the status and the other credits regardless. Alimony under any agreement signed after 2018 is neither deductible nor taxable; child support never was. Legal fees for the divorce are not deductible. Full article: Divorce and Taxes.
↑ Back to topDose: Medicare premiums are set by income from two years earlier, which for a new widow or a newly divorced person is a joint return with two incomes. Death of a spouse and divorce are both listed life-changing events; Form SSA-44 with the death certificate or decree asks Social Security to use current-year income instead.
A widow whose joint 2024 return showed $230,000 and whose own 2026 income is $90,000 is billed the second IRMAA tier (about $2,400 extra for Part B and D) unless she files the form. It is one page and it is routinely granted. The same form covers the sale of a business, a pension loss, and retirement itself. Full article: Medicare IRMAA.
↑ Back to topDose: a PERA survivor benefit is pension income to the survivor, eligible for the $20,000 (55–64) or $24,000 (65+) subtraction in the survivor’s own right; a beneficiary under 55 who inherits retirement income gets the $20,000 subtraction too, by exception. The senior homestead exemption passes to a surviving spouse who continues to occupy the home, even if the survivor is under 65 or hasn’t personally met the ten-year test (verify the surviving-spouse continuation rule). In a divorce, PERA is divided by a domestic relations order on PERA’s own form, not an ERISA QDRO.
The Colorado $75,000 / $95,000 AGI cliff on the full Social Security subtraction becomes a $75,000 cliff for a single survivor, which is one more reason to convert in the joint years. Colorado has no estate or inheritance tax; nothing is owed to the state on the death itself. Full article: Colorado for Retirees.
↑ Back to topFile jointly for the whole year. Get a date-of-death appraisal of the house and a date-of-death statement from the broker so the step-up is recorded. Decide whether to roll his IRA into yours or keep it inherited (keep it inherited if you are under 59½ and may need money). Consider a Roth conversion up to the top of the joint 22% bracket. And if you are on Medicare, file Form SSA-44. Then, if you want to sell the house, do it within two years.
If one of you benefits from one more joint return (lower combined tax, a large one-time income item), January 2 is better than December 31. If one of you qualifies for head of household with the children, that status is available either way once you’ve lived apart for the last six months. The house is usually the larger question: sell before the decree and you each get $250,000 of exclusion.
Take any cash you will need in the next few years from the plan first, under the QDRO; it is taxable but there is no 10% penalty regardless of your age. Then roll the rest to your IRA. Once it is in the IRA, early withdrawals are penalized.
Yes. Her half of every position stepped up to its value on the date of death. Send the broker a copy of the death certificate and ask them to adjust the cost basis as of that date; otherwise the 1099-B will report the original cost on all of it and you will overpay on half the gain.
For the Tax Shop desk · the deadlines and status rules that set the dose
In the first months after a death, three things: the appraisal and the broker letter for the step-up, the IRA decision made with someone who knows your age and your cash needs, and Form SSA-44 if you are on Medicare. Before the year ends, a conversation about the last joint return and whether to convert. In a divorce, the same conversation belongs before the decree is signed, while the house, the retirement accounts and the children’s credits are still being allocated and the tax can still be part of the deal. We have had both conversations many times; call, and bring whichever papers you have.
Call 303-734-1040 or stop by the office in Lone Tree. We’ve been reading the footnotes for Douglas County and the Denver area since 1969.
Figures reflect the 2026 tax year as currently published and are rounded for readability. Items marked (verify) are to be confirmed against IRS or Colorado DOR sources before the figures freeze in December. Last updated October 15, 2026.
