Capital gain is the selling price minus the basis. If the home was held as community property, the entire property gets stepped-up basis to the fair market value on the date of the first spouse's death. So the gain on the "primary home" would be the selling price minus $502,000. The gain on the second house would be the selling price minus $468,000. (This is assuming no additional improvements were made between the first spouse's death and the sale.)
The "primary home" would probably qualify for the exclusion of gain. If sold within 2 years of the first spouse's death, provided that the surviving spouse has not remarried, the maximum exclusion would be $500,000. After 2 years it would be $250,000 (assuming the requirements for the exclusion are still met). Selling in the year of death makes no difference. The second house would not qualify for any exclusion of gain because it was never the primary home of either spouse.
Section 121 does not defer the capital gain, it permanently excludes the gain from tax, up to the amount of the exclusion. There is no longer a provision in the tax law that allows capital gain on a primary home to be deferred if you use the proceeds to buy a new home. That provision was eliminated in 1997.
A 1031 exchange is only for business property. Neither of the two homes that you describe would qualify for a 1031 exchange.
Community property also affects reporting of the property on the estate tax return, if one is filed. If you are filing an estate tax return you should consult a tax professional. You cannot file an estate tax return (Form 706) with TurboTax.
