Sale of home after spouse dies

[Jdelbennett]

How are capital gains calculated on the sale of a home originally held jointly after one spouse dies. Isn't there a stepped up cost basis for the deceased spouse?

[NCperson]

yes, half the capital gain is 'stepped up' 

What was the value of the home at the time of the death of the spouse? 

For simplicity, let's assume the home was originally purchased for $500,000; there were no improvements along the way and the home was worth $1.1MM  when the spouse died.  The new cost basis is $800,000 as half the increased value of the home ($600,000) is 'stepped up'.  

there is no capital gains to be reported until the surviving spouse sells the property. 

[Lisa3588]

I agree with the example posted above but let's include some capital improvements:

Original Cost: $500,000

Capital Improvements: $100,000 (could be a renovation to kitchen and baths)

MV on Date of Death: $1,100,000.

You inherited a cost basis of 1/2 MV, or $550,000 from decedent.  This is simple and is one-half the market value on date of death.

Your cost basis in the property prior to the inheritance is 1/2 the original cost, or $250,000 plus 1/2 the capital improvements, or $50,000 for a total of $300,000.  Therefore your new cost basis, post-inheritance, is $300,000 + $550,000=$850,000.