You owe capital gains tax on your gain, the difference between adjusted cost basis and selling price. In your case, each sibling reports 1/5 the selling price and 1/5 the cost basis.
The selling price can be reduced by certain costs of selling like transfer taxes, mortgage recording fees, and inspections or surveys you paid for as part of the sale.
Cost basis will be the problem. In the end, make the best good faith determination you can, but remember that if audited, the IRS does not have to credit you with any basis you can't prove.
The first thing you need to know is the form of the deed. If your father retained a "life estate"--the right to live in the home until his death, and you could not sell it before then--then you inherited the home, even though there was a quit claim deed in the past. You inherit a stepped-up cost basis; your cost basis is the fair market value of the home on the day he died. If you sold the home immediately, the FMV is probably the selling price. If there was a delay, you may need a real estate appraisal.
If there was no life estate, if you obtained the home "in fee simple", then your father gave you his cost basis, which is now your own.
His adjusted cost basis is:
His original purchase price plus original closing costs plus the cost of permanent improvements he made minus depreciation he took or could have taken for business use of the home (home office, rental). Then you can take a further adjustment for any improvements you and your siblings made after inheriting the home and before selling it.
An improvement is not a repair. An improvement adds value to the property or extends the useful life of the property or its sub-systems, and must be attached to the real property (land and anything permanently attached.) Things like an addition, a new roof, new furnace. If you made the same improvement more than once, like replacing the furnace, only count the one that is still part of the home. If you don't know the cost of improvements, you can estimate, but remember the IRS will not award any basis you can't prove. Any estimates are at your own risk.
If your father owned the home with a spouse who died before he did, then your father has another adjustment to his basis. If he did not live in a community property state, he inherited one-half the home when his spouse died and gets a basis adjustment. For example, the home was purchased for $20,000 and there was a $10,000 renovation to the kitchen. Your father and mother each had a $15,000 basis. When your mother died, the fair market value of the home was $100,000. Your father inherits half the house with a stepped up basis ($50,000) so his total adjusted basis is now $65,000.
If they lived in a community property state, he inherited the entire house will a fully stepped up basis at the fair market value. If you need the FMV for a past date like the date your mother died, a qualified appraiser can usually give a value based on historical sales records.
Then, whichever type of stepped up basis your father got, you would add any improvements he or you made after his spouse's death.
So your starting point is to answer the following questions:
1. Was the quit claim deed in fee simple or did he retain a life estate.
- If a life estate the only other information you need is any improvements you made after he died, and the appraised value (fair market value) when he died.
- If no life estate, then you also need,
2. How much did he pay when he bought the house (find this in county records)
3. Did he own the home with a spouse who died before him? (you probably know this or it will also be in the county records)
4. What was the value of the home when his spouse died? (get an appraisal)
5. Did they live in a community property state?
6. What was the cost and date of any improvements? (estimate at your own risk)
7. Was the home ever used as a rental or home office (an account can estimate the amount of depreciation taken or you will need to review his past tax returns).
