It depends on the circumstances.
The simple answer is that your basis is:
- one-half your brother's basis in 2001, since when he gave you half the property he also gave you half his basis. His basis would be the price he paid, plus the cost of any permanent improvements made between the day he bought the property and the day he gave it to you,
plus
- Half the cost of any permanent improvements that were made between 2001 and 2021 (new roof, new furnace, etc.) You can add half the cost of the improvements to the basis of your half of the house.
plus
- Half the fair market value on the day your brother died--since you inherited half the house at that time,
Now, if the gift was actually a life estate, your basis is the full fair market value on the date he died. A life estate means (roughly speaking) that part of the house is given to you, but your brother had the right to live in the house until he died, and you had no right to sell your half to someone else. (With a gift in fee simple, without a life estate, you would be free to sell your half to another investor, a property developer, or anyone else.). A life estate can be in writing in the deed, or it can be implied by the facts and circumstances.
If you claim on your taxes that there was an implied life estate, and you use the full FMV in 2021 as your basis, I would recommend that you take whatever steps you can to document that it was a life estate, in case of audit. You would want to show by facts and circumstances that your brother's intention was that he would live in the house and you couldn't sell or force a sale of your half. Maybe you have old letters, or maybe there are other family members who knew about it at the time who could write you a letter confirming the facts. I don't know how likely it is that you would be audited, but it might be a good idea to be prepared for the worst, just in case.
