My mistake. The net would be $104,500. I would like to think the implied life estate would apply by default since they lived there. The stepped up basis (at death) would be what we sold it for 90 days after my dad passed which would mean no capital gain. The other opinions here seem to subtract any and all improvements from gross profits and the net would face capital gains. At least a step up in basis to 2008 (vice 1966 original purchase) would help but that doesn't seem to apply either. Wish this was more clear in tax code. To make matters worse it wouldn't surprise me if parents failed to list house as a gift on their 2008 tax returns. Don't know how that impacts.
