sorry for your loss. yes you should be entitled to a $500,000 exclusion if
either of you owned the house for 2 years out of 5 years before the spouse died and
both spouses used the home as their main residence for two years out of 5 years before the spouse died and
neither spouse used the exclusion for the past two years. this assumes you have not remarried before sale.
what you haven't provided is who owned the house and whether you live in a community property state.
however if you live in a community property state the IRS says this
Community property. In community property states (including Arizona, California, Idaho, Louisiana, Nevada,
New Mexico, Texas, Washington, and Wisconsin), each spouse is usually considered to own half of the community property. When either spouse dies, the total fair market value of the community property becomes the basis of the entire property, including the part belonging to the surviving spouse. For this rule to apply, at least half the value of the community property interest must be includible in the decedent's gross estate, whether or not the estate must file a return.
so if this is the case your basis is the total FMV of the house + any improvements made after he died. however, since he took the home office deduction, the depreciation taken is not eligible for exclusion.
in a non-community property state, only his % ownership would get a stepped-up basis
so your total basis would be his stepped-up basis + your basis in the original purchase + your % ownership in any improvements made before he died + all improvements made after he died
and again the home office depreciation would be subject to recapture.
if you enter something directly in a form, you will no longer be able to e-file.
