generally, each co-owner is responsible for reporting their share of the gain. however, since she has not yet sold the house, you and your spouse can make a gift of your equity in the house so that she and if you want her spouse would be the only owner(s) and thus the only one(s) reporting the gain. you would have to file gift tax returns. she would acquire the basis you and your spouse had in the home. if she were later to gift you and or your spouse money (for your shares), the IRS could legitimately take the position there was no gift and you and your spouse now owe taxes penalties and interest. this is best discussed with a real estate attorney so things are done properly.
