We inherited 1/2 interest in my husband's family home when his mother died in 1990. He sold his interest in the house to his nephew who owned 1/3 of the other half in 2007. Do we have to pay taxes on the sale?

Yes - assuming that the amount he sold it for is more than his cost basis he would have to pay capital gans on the increase, assumng that the home was not his primary residence for at least 2 of the previous 5 years. The cost basis is the market value of the half-interest on the date his moter died in 1990 - hopefully the executor of his mother's estate let him know what that value was at the time.

Agreed!