One of the down sides of being in a common law state is that a surviving spouse only gets a stepped up basis on one half of the property. So the surviving spouse's inherited basis is half of the original basis (7500 dollars + half the cost of improvements) plus one half of the fair market value from the date of death in 1992.
In community property states, the surviving spouse receives a full step in basis to the fair market value on the date of death. See IRS
Publication 551.
