For a spouse in a community property state, the stepped-up basis is the Fair Market Value of the entire house on date of passing.
There is also an option for the exclusion to capital gain for a surviving spouse.
According to the IRS:
"Surviving spouses. If you are a surviving spouse who doesn't meet the 2-year ownership and residence requirements on your own, consider the following rule. If you haven’t remarried at the time of the sale, then you may include any time when your late spouse owned and lived in the home, even if without you, to meet the ownership and residence requirements.
Also, you may be able to increase your exclusion amount from $250,000 to $500,000. You may take the higher exclusion if you meet all of the following conditions.
You sell your home within 2 years of the death of your spouse;
You haven’t remarried at the time of the sale;
Neither you nor your late spouse took the exclusion on another home sold less than 2 years before the date of the current home sale; and
You meet the 2-year ownership and residence requirements (including your late spouse's times of ownership and residence, if applicable)."
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