My husband and I (actually, our revokable Trust) owned a second house in AZ. We never lived in the house. My parents lived there rent-free. We never claimed any deductions or charged any rent. My husband died in March 2024 and I sold the house in Dec. 2024. I have since moved to a state that is not a community property state.
I know I cannot claim an exclusion for any gain because the house was not our primary residence. However, I've been told that I can get a full step-up in cost basis to the value of the house on the day my husband died because AZ is a community property state. Is that correct?
If it's correct, how and where in the TurboTax software do I enter that info? There's a place to enter the selling price but when I used the "Easy Guide to Help Calculate the Adjusted Cost Basis," there was nowhere to enter the value of the home on the day my husband died.
Also, according to my calculations, if I get a full step-up in cost basis, I won’t have any gain; I’ll actually have a loss. I know I can’t claim a loss. Will it look suspicious and trigger an audit if I report zero gain since I cannot claim a Section 121 exclusion?
