Hal_Al
Level 15

Deductions & credits

Q. Does she still need to pay the taxes on the remainder of proceeds?

A.  Yes, if her capital gain is greater that $250,000, she will pay income tax at capital gains rates on the excess (the gain over $250,0000).  Using the money to pay nursing home, or other medical expenses, does not  matter (other than that she may be able to claim itemized medical deductions).