I believe you may have confused two different taxes. There was no Estate Tax with respect to persons who died last year with estates valued at under $675,000 (This year it is $700,000).
Unless one of the few exceptions applies, you have to report any gain from the sale of real estate and pay a tax on the gain for federal and state Income Tax purposes
The main exception is the exclusion of gain on sale of a main home: If you have a gain from the sale of your main home, you may be able to exclude up to $250,000 of the gain from your income ($500,000 on a joint return in most cases). Any gain you cannot exclude is taxable. Do not report the sale of your main home on your tax return unless you have a gain and at least part of it is taxable. Report any taxable gain on Schedule D (Form 1040).
