Yes - use the FMV at the time of your mother's death as he basis of the property.
Some background:
If your mother gave you the house in 2007, without retaining the life estate, when you sold the property you would have to use her basis (when she bought the property).
If you inherited the property from her, you are entitled to use the fair market value at the time of her death as the basis. This is known as "stepped up" basis.
Your situation is a little different in that she transferred ownership in 2007, but retained a life estate for herself.
Several elder law specialists conclude that the "remainderman" [you] can also take advantage of stepped-up basis--the value of the property at the time of death of your mother, and not the value in 2007.
So you can calculate the capital gain or loss based on the FMV at the time of your mother's death.
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