You need to consult with a tax professional who can review the deed and will.
However, at first blush, it appears as if the will established the value of the remainder interest on the date of your father's passing subject to a life estate. '
One issue here is whether your step mother was on title or not.
Regardless, you would need to establish the current basis which would be done by valuing the life estate using the IRS actuarial tables.
See https://www.irs.gov/retirement-plans/actuarial-tables
The life estate would have value, of course, and the relinquishment of such would be in the nature of a gift to those holding the remainder interest.
Again, you might want to consult with a local tax professional and/or legal counsel.
