This is a complicated legal issue since your wife never owned the property but was gifted 1/2 of the proceeds.
The issue is that your mother in Law needs to file a 709 Gift tax return to report the gift of 1/2 of the proceeds to your wife. Turbo tax does not handle the filing of this type of return. For your convenience, please refer to this link for a copy of the 709 form and the instructions for filling out and mailing it. It cannot be electronically filed. Your MIL would file this gift tax return if the gift of 1/2 of the proceeds was more than $16,000. This needs to be filed before April 18 of this year.
Since this is a monetary gift of proceeds given to your wife rather than a gift of the apartment building, your wife does not have a reporting requirement to report the sale of the apartment building since the monetary gift was given after the sale was complete. Mike9241 did correctly mention this above.
Your MIL would need to report the sale on he individual return. MarilynJoy correctly lists the steps on how the sale should be reported. Please have her refer to those. It is important to note that the Fair Market Value on the date it was passed to your MIL is to be used as the basis. Be sure to have her add in the selling expenses to the basis as this will reduce the capital gains, if any.
Just an FYI, since your MIL gifted 1/2 of the proceeds, she will only report 1/2 of the sale on her return. This will involve reporting 1/2 of the proceeds and 1/2 of the basis, including the selling expenses. Make sure she files the Gift Tax Return.
@comrade_general
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