Home loans

@cashmir316  understood 

note that for the capital gains exemption to work, not only do you have to live in the home 2 of the past 5 years, you also need to own it for a 2 years of the past 5 years.  While you MIL may have lived in the home for 2 of the past 5 years, she may  not able to meet the 2 year ownership requirement until 2 years after the deed is back in her name.  See page 3.

 

https://www.irs.gov/pub/irs-pdf/p523.pdf 

 

That stated, best to estimate her tax situation.  It could be there is no capital gains in any event.  Depends on her income.  At lower income levels, the capital gains tax is zero in any event.  Use this calculator to assess: 

 

https://www.dinkytown.net/java/1040-tax-calculator.html