Can heir avoid capital gains taxes on sale of parents' home?

This tax bill was avoidable. Instead of transferring the property to their children's names, the parents should have waited to bequeath it after they died.

Dear Liz: My wife and her brother are selling their parents' home. The parents transferred the deed to their children's names years ago. My wife should receive about $85,000 from the sale. Our yearly income (one salary; she's a stay-at-home mom) is around $75,000. My wife is worried about capital gains taxes and wants to reinvest in another real estate property because she's heard that that will eliminate the capital gains tax. Is that correct? I would really rather invest that money in our current home (finish the basement into a family room, update some items) and pay off our car loan than worry about another property to take care of. What do you think?

Source: http://feeds.latimes.com/~r/latimes/business/~3/547C0Sl_R3E/la-fi-montalk-20121125,0,4444735.column

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