Skip to navigationSkip to main contentSkip to right columnADVERTISEMENTGerelyn TerzoFri, July 3, 2026 at 12:03 PM GMT+2 5 min readQuick ReadA surviving spouse's cost basis resets to the home's fair market value on the date of death, often eliminating decades of taxable gain.Community property states like California and Texas step up the entire home's basis, while common-law states only step up the deceased spouse's half.A smaller reportable gain also shields Social Security from taxation and prevents IRMAA surcharges that can add hundreds of dollars monthly to Medicare premiums.Are you ahead, or behind on retirement? SmartAsset's free tool can match you with a financial advisor in minutes to help you answer that today. Each advisor has been carefully vetted, and must act in your best interests. Don't waste another minute; learn more here.She still calls it our house even though she has lived there alone for a couple of years now. The place is almost certainly worth several times what they paid for it in the mid-1990s, which is keeping her up at night. She wants to downsize, but fears the IRS will take a giant bite out of the proceeds and drag her Social Security check and Medicare premiums along for the ride.AnnaNahabed from Getty Images and Andy Dean PhotographyThat fear is common. On retirement forums, versions of the same question appear almost weekly: a recent widow sitting on a home that has appreciated for 30 years, convinced she is about to write a six-figure check to the Treasury. In most cases, she will not. The reason is a hidden provision of the tax code called the step-up in basis, one of the most generous breaks available to a surviving spouse.For tax purposes, the gain on a home is the sale price minus the cost basis. Cost basis usually starts at what the couple paid, plus the price of major improvements. After 30 years, that number can look painfully small compared to today's market value.Read: Are you ahead, or behind on retirement?