You will average the cost basis for when they daughters went on as co-owners and when they took full ownership. You will deduct the cost basis from the proceeds.
For example:
House bought in 1970 for $100,000
Daughters join as owners in 1990, FMV is $150,000; each owner has basis of $50,000
Father dies in 2017, FMV is $200,00; each owner has basis of $100,000
When home is sold, each of the two owners has cost basis of $75,000
Home sold for $210,000, each owner has proceeds of $30,000 ($105,000-$75,000) subject to long term capital gains.
