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This is somewhat related to the "oops...estimated taxes?" discussion.

I am a disabled Vietnam Era veteran. My wife died in January of this year. One problem with the home that we purchased in 1977 was its location. It was extremely difficult to arrange transportation and get to VA medical facilities.

Several months after my wife's death a decided to sell the house in Thousand Oaks, CA and move to the Sacramento, CA area. I chose Sacramento due to the accessibility of VA medical facilities and because one of my daughters, one of my sister, and my mother lived there. Plus it gave me a chance to be a Millennial for a while by moving into my mother's house while I looked for a new house.

In 2020, I will file my final joint tax returns. Although my wife died on 15 January, will I be able to claim the $500,000 capital gains exclusion on the sale of our house?
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You can, but it will be unnecessary.

You live in California, which is a community property state. Because of that, your house got a full step up in basis to its current fair market value as of the date your wife passed away. Because you sold the house only months after her passing, there should be a little to no gain on the sale of the property.


PS for the lurkers in separate property states: The deceased spouse’s half of the property would get a step up in basis. The remaining half would continue at its original basis. So the exclusion on the sale of a home still matters in that situation. But if the house was the separate property of only one spouse, then it will get a full step up or no step up at all, depending on which spouse passed away.
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