Why did your wife get a portion of the proceeds if she was not an owner or inheritor of the property? Why wasn't it all paid to your mother-in-law?
"The property was listed as John Doe Heirs and Jane Doe."
It's not clear how this relates to your wife and your mother-in-law. It seems to imply that there was more than one owner. If Jane Doe is your mother-in-law and John Doe Heirs is your wife, then your wife did own a portion of the property.
If the proceeds were intended to be a gift from your mother-in-law to your wife, it would have been more proper for the entire amount to have been paid to your mother-in-law and then your mother-in-law could have given some amount to your wife. If this is what should have happened, you should try to get your wife's Form 1099-S corrected to show $0 and your mother-in-law's Form 1099-S to show the entire amount. Absent these corrections, your wife could use the nominee process to transfer the income to your mother-in-law.
If instead a portion of the property was gifted to your wife before the sale, your wife would have been part owner. Your wife would have to have been shown on the deed prior to the sale if that was the case.
As others have said, one needs to know the cost basis (value at the time of father-in-law's death plus any adjustments to basis since) to be able to determine the taxable gain or loss.
