Capital gains when spouse dies

[Ashton Karp]

Hello, BP. I have a situation that I would like the hive-mind's thoughts on. 

How will the formula for Capital Gains be affected after a spouse passes away?

Real life example for clarification. 

Home is purchased in 2002 for $325,000 and used as a primary residence for the duration of ownership. 

Husband passes away in October 2021. Home is sold in August 2022 for $900,000. The home is in WA state, a community property state. 

How would capital gains be calculated in this situation? I am not looking for a number, but an understand of the process when a spouse dies. 

Is there a step up in basis for the husbands half of ownership, will there be a $250,000 or $500,000 homestead deduction, and are there other mechanisms in play that I may not be aware of?

The seller has consulted their CPA but I am looking for a better understanding here. 

Thank you, everybody!

[Ashton Karp]

Quote from @Dave K.:

Can I revive this thread as my questions are so closely related to the OP. 

Also, State of WA. 

Purchased Dec 2001 for $215K  Considering Selling today for about $750K = $535K appreciation

Spouse passed 2019.  Is the step up in basis for the property now sitting at what the house was worth at 2019? $487K (zillow estimate) or the value when the property is sold today at $750K? 

Also, in the OP example since the living spouse sold within 2 years, can't they claim the husband and her lived in the house for 2 of the 5 years and get $500K exemption. Maybe this would be used for non community property states? 

 Hey Dave,

My newly refined understanding is that your step up in basis would occur at the time of your spouses passing, so 2019. That’s your new basis and assuming you have lived in the subject property for 2 of the last 5 years then you would be eligible for the $250,000 deduction unless you have remarried then it would be a $500,000 deduction. If you have been taking depreciation, before or after your spouses passing, then I am unsure of that affect but would be interested to know that answer. 
Consult a CPA as I am not one. I am just a simple agent.