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If she sells now the cap gains is on the full $1,000,000, except there’s a $500,000 exclusion (because they are both alive), meaning she will pay on $500,000, or $100,000 at 20% cap gains.

By the way, in 2019 for MFJ, the capital gains rate doesn't hit 20% until there is at least $488,301 in taxable income. And assuming that both are over 65, the MFJ standard deduction is $25,300. So even if they sell now, with a taxable capital gain of $500k, they would have to have at least $13,301 in other taxable income before a single dollar would be taxed at 20%. (Note, for 2017, an income level of $513,301 would be in the 99th percentile for income ) So unless they are 1%'ers, the tax on a $500k capital gain is probably going to be $75k, rather than $100k you suggested.

Also in 2019, the Single capital gains rate of 20% doesn't start until taxable income is at least $434,551, with the standard deduction of $13,300 for those over 65. Those numbers will likely be adjusted slightly upward for inflation each year, so in 3 years the combined total is likely to be at least $450k. So even if they live in state that doesn't have community property and she doesn't sell until more than 2 years after he dies, she would probably have to have at least $200k in other taxable income before any of the $250k capital would be taxed at 20% - her capital gains tax as a single filer would probably be closer to $37.5k than to $50k.

So, yes, there may be tax impacts, but likely not as high as you suggested.

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