I agree 100% with @Anonymous_ that you should seek professional legal/tax assistance. However, you might want to know some general principles that likely apply in your situation:
1. Since ownership of the home was transferred to you & your siblings while the mother-in-law was still living, it was NOT an inheritance. Legally, a transfer by quitclaim constitutes a gift, because no money changes hands. A gift tax return should probably have been filed at the time.
2. A capital gains tax is definitely owed. Since the siblings both owned the home and lived in it as their primary residence for 3 years prior to the date of sale, they should each qualify for a capital gains exclusion of $250,000 on their portion of the gain.
3. The capital gain is the net sale price less the donor's adjusted cost basis at the time the gift was made, plus any capital improvements made to the property after the sale. This would be further adjusted if a gift tax was paid at the time of the quitclaim (highly unlikely).
4. The interest earned by a CD is subject to ordinary income tax.
5. If any of the $20,000 was used for capital improvements to the home, that portion would be added to the cost basis. A capital improvement is (for example) a room addition or a new roof, not a repair.
So I think you can see why professional assistance is recommended in your case.
**Answers are correct to the best of my ability but do not constitute tax or legal advice.
