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When they both pass away, the house will come to you with an adjusted basis to the value at the time of the last parent's death. There will be no capital gainst taxes to pay. You can then live in the house for two years as your primary home and sell with the tax exclusion benefit going to you.

Why go through the personal use? As you note, inherited property comes with current FMV basis. If they sold shortly after inheriting, they'd likely have a long-term capital loss roughly equal to the expenses of sale. If they moved into the property they'd be lucky to realize enough appreciation in the two years to make up for the expenses of sale, and if they wound up with a paper loss it would be disregarded.

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