You almost always pay less tax when married filing jointly than married filing separate. As long as the house that was sold in March was your daughter-in-law's primary residence for 24 of the 60 months immediately preceding the sale, the gain (up to $250,000) is tax free. The sale of the house would be reported on the federal tax return, but no gain would be recognized. The sale is not reported on the state tax return. For more information, see the following:
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