@jrockage all the above is assuming that the house was never rented out or used for any other business purpose while she was in the nursing home. If these assumptions are correct, then she qualifies for the $250K capital gains tax exclusion.
If she was married and her spouse was living in the house with her (or considered living "with her") then there's a way to get the $250K exclusion for both. I myself am not privy to that method and will not try to cover that here unless we know "for a fact" that this is the case. It's complicated.
