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In regards to your first question, you will use the original purchase date.  Regardless of how long you actually held the property, you will treat the asset as being held for more than one year. 

In regards to your next question, you are correct, you will use the fair market value taking into account the stepped up basis when entering the cost basis.

Any home improvements made will increase your cost basis.  Selling expenses for the sale will reduce the overall gain, if any, on the sale of the home.

Please see Publication 559 for additional information.