From the AARP Bulletin:

"Tax Break for Widowed Homeowners
You now have up to two years following a spouse's death to sell your jointly owned home and keep up to $500,000 in profits tax-free, thanks to a provision of the Mortgage Forgiveness Debt Relief Act signed into law last December.

The change should allow recently widowed homeowners more time to grieve and better plan their future, instead of rushing a home sale to avoid paying more taxes. Previously, a home had to be sold the same year as a spouse's death to qualify for the $500,000 exclusion; widowed homeowners who waited two years were only eligible for up to $250,000. Any longer, they wouldn't be eligible at all."

I didn't know any of this - I thought the deceased spouse's estate passed to the surviving spouse without taxable event, and then it would be dealt with when the second spouse died. Guess I'll have get up to date.