Life Tenant Is Alive: When the property is sold before the life tenant dies, then there is no "step-up" in basis and capital gains are paid based on the original purchase price of the property with adjustments for improvements, etc. that haven't been deducted. The resulting capital gain is divided up between the life tenant and the remainderman based on age and life expectancy.
Exemption for Personal Residence: The IRS will allow a homeowner who is living in the house an exemption for tax. The exemption amount is for personal residences and is $250,00 for single and $500,000 for married owners. The exemption is available if he owner has lived in the real property for at least 2 of the last 5 years. However, only the life tenant can take advantage of the exemption, as he is the only person living in the home. The remainderman is likely to owe capital gains if the property is sold during the life tenant's lifetime.
as stated you'll need to consult with an attorney to determine who reports what.
