@Scorp_930
Your brother is probably right. The usual rule, for a gift, is that the recipient's basis is the giver's basis (what you mother paid for it). But there is an exception for the gift of her home, where she retained the right to live there ("life estate"). (invalid link deleted) which states in part "If you give away an asset and keep a life estate in that asset..... the cost basis of the house is "stepped-up" to the value of the house on date of death [IRC 2036]")
More info: http://www.law.cornell.edu/cfr/text/26/20.2036-1
A life estate does not have to be explicitly established in the deed. Your mother probably had an "implied life estate." If so, that would give you the stepped up basis of an inheritance . There is case law on this.
Your basis in your half is 1/3 of the Fair Market value (FMV) in 2003 + $12, 050.
