Since the house was transferred to you two while the original owners (your parents) were still alive. It's considered a gift. So your cost basis in the house is whatever your parents paid for the house originally, plus the cost of any property improvements. You do *NOT* get a step-up in basis since the house was gifted to you, and not inherited upon their passing.
Each of you will report the sale in the "sale of home" section and each of you will use 1/2 of the cost basis as your acquisition cost, and 1/2 of the sale price as your sales price.
Each of you will pay taxes on whatever gain you realize on the sale, that exceeds the original acquisition costs.
Neither of you will qualify for the "2 of last 5" capital gains exclusion since neither one of you lived in the home as your *PRIMARY* residence for 2 of the last 5 years you owned it. So for both of you, all of your profit on the sale is taxable income.
