You are required to report the sale.
As you surmised the basis is divided among the heirs in the same way that the proceeds were. It will be entered on schedule D and form 8949, although in TurboTax you will just scroll down all the way to the bottom of the Wages and Income section of your federal return and find "Less Common Income". About midway down that section is an entry for 'Sale of Home'.
Click on that and enter the information about the sale and the system will put the information on the proper forms for you.
@lizC
**Say "Thanks" by clicking the thumb icon in a post
**Mark the post that answers your question by clicking on "Mark as Best Answer"
