The Recovery Rebate Credit is based on 2021 taxes but the IRS used 2019/2020 numbers to send out the advance payment (third stimulus).
If your mother-in-law cashed out large investments in 2020 it makes sense she would not have received a stimulus payment because her 2020 income was too high.
However the payment is actually based on the 2021 return, so she would get the $1,400 added to her return if she meets the rules for 2021.
If the home was sold through an estate, the estate would have paid the tax and the beneficiaries would receive the proceeds tax free. Income from the estate would be passed down via Schedule K-1s.
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