I see many other questions on this topic, but none to my exact situation. I am curious how this works.
My sister and I jointly inherited a property of our late aunt in CT which was valued (and filed estate-wise) at $650,000.
As the property required much work before the sale, we invested over 200,000 into improvements. We sold the house for 837,500 in 2007.

If our "capital losses" exceed our "gains", will there be a refund or is it just a loss + no capital gain taxes incurred?

Thanks.

You can deduct capital losses in excess of gains up to $3,000 per year. Any excess is carried forward and is deductible up to $3,000 per year.