Firstly, I'm sorry for your loss.
The step-up in basis is available to taxpayers in all states, but it does work a little differently in community property states such as California. Typically, when one spouse passes, only their portion of the home gets a step-up to fair market value. In community property states, the entire home gets the step-up. So, when your mom sold the home, her gain or loss is calculated using the full fair market value of the home on the date of your dad's passing as her basis.
You can make this adjustment as an "other increase" to basis on the adjusted basis worksheet.
