I think I found how to enter the step-up in cost basis in the TurboTax software.
1. Enter the actual sale price in Selling Price.
2. Enter any sales expenses in Sales Expenses.
3. Click Continue.
4. On the Tell Us About the Purchase of Your Home screen, click the EasyGuide button to calculate the Adjusted Cost Basis.
5. On the Adjusted Cost Basis Easy Guide screen, enter the Original Cost and misc other fees.
6. Click Continue.
7. On the next screen, answer whether the seller paid any points or loan origination fee.
8. You will eventually get to a screen that asks you to enter Permanent Improvements, Cost of Home Additions, and Special Tax Assessments. Enter those and click Continue.
9. Keep going through the EasyGuide screens until you get to the screen that says “Enter the description of any other items that increased the cost of your home…For example: You received part (or all) of the home through an inheritance or a divorce…”
a. In the Description of Increase field, enter a description such as “Step-up in cost basis due to death of spouse.
b. In the Amount field, enter the difference between the Original Cost and the FMV of the house on the day your spouse died (for example, if Original Cost was $222,000 and the FMV was $461,000, enter $239,000).
c. Click Continue.
10. Enter a description and cost for any items that decreased the cost of the home.
11. Click Continue.
12. The final EasyGuide screen will show the value you entered for Permanent Improvements. It will also show, in the Other Increases field, the adjustment for the step-up in cost basis that resulted from entering the value you entered in step 9b. The sum of these two values is shown in Total Increases field, and the value that reflects the effect of all the increases is shown in the Adjust Basis field.
