How to report sale of rental house with stepped up basis and remove prior deprieciaion after death of spouse

Depends on your individual circumstances that would effect the tax reporting.

If the property  is held as community property, the entire interest in the house gets a step in basis to the current FMV.

 If the property is held “with rights of survivorship” then the house passes immediately to the survivor which in turn inherits the new stepped up (or down) basis of the decedent to add to his or her own basis-in the case of joint tenancy or tenancy in common, 

State laws dictates your stepped up basis ,Federal law dictates the taxes on sale.

In Revenue Ruling 63-223, the IRS stated that depreciation determined for the period after a decedent's death shall be computed using the fair market value as of the date of death or the fair market value on the alternate valuation date, as applicable.[land value is separated.. land is not depreciated]

 The accumulated depreciation on the rental property prior to the decedent's death is irrelevant. Once the property has been inherited, the depreciation schedule would begin based on the new fair market value.

There are many rules that could affect you,it is always best to seek competent CPA's advice as  your tax situation will have  unique circumstances that applies only to you.

If reported as a rental in Turbotax you would take the property out of service on date of death. Then recompute the adjusted basis in accordance with state laws and then enter the sale in Turbotax with the proper calculated basis.