My mother signed over her house and property to me and 6 other siblings in 1987, with lifetime rights for herself.
She died in 2007, and the property sat vacant, because of the declining real estate market, until in was sold in 2013.
We took the sale price divided by the accessed value in 2013 and came up with a 6.154 factor
We then took the accessed value in 1987, times the 6.154 factor and came up with a
supposed 1987 value.
I'm thinking that our taxable capitol gain would be the difference in sale prices minus the closing costs, divided by 7. Is this correct ? Thanks for any help.

Your cost basis for the house was the market value in 1987, when the house was signed over to you (I'm assuming here that you didn't buy the house from mom). That cost basis should be subtracted from the sale price along with any improvements made to the house. That would be your taxable income. Each sibling would have to claim 1/7th of that as taxable income.

Well done, Scott. I could not have said it better myself!

The only question I had here was since this was the mother's residence and it does not appear that any sibling used it as a residence would it be considered investment property with different rules?

Scott and AtlantaTaxExpert: since the house was gifted to the siblings in 1987, wouldn't their cost basis have to be figured using the gift rules - i.e. cost basis is probably the mother's original cost basis (unless the property is sold at a loss, in which case it gets a bit more complicated)? Or does the life estate issue allow the siblings to treat it as if inherited in 1987?

To answer Scott's follow up question - the sale of the home is treated as sale of personal property since none of the siblings lived in it. Hence capital gain on the sale must be reported, but if there is a capital loss (which is doubtful in this case) they may not take a deduction for that loss.

There was not a completed gift in 1987. It was only a gift of a partial interest. I believe the full value of the house would be reportable in an estate return if one was required. Therefore, the family should be able to use the fair market value of the house in 2007 (date of death). Refer to Code Section 2036.

If the family has not used the property since the date of death, I believe a case can be made that this is investment property, and if it is sold at a loss, the loss could be used, subject to the capital loss rules. The IRS may not agree with me, but I think there are court cases to support this.

I agree with MLSNC about the basis for the house being the FMV in 2007. He just beat me to the punch in posting an answer.

However, claiming it as a capital loss without it EVER being rented would be extremely risky in my opinion.