there are still missing details.
1) what was the market value of the house when the parents died? THAT is the "stepped up cost basis" of the home and that cost basis gets split 8 ways and I assume each of the 8 siblings inherited equal share or 12.5% of the house.
2) you bought two of those eight shares for $2,000 each. In return you owned 25% of the house value (and then your wife owned another 12.5%). Your cost basis on those two shares is $2,000 per share. Your wife's cost basis remains the same as it was calculated in step 1. Her two siblings who sold to you have a capital transaction where the cost basis is what was calculated in step one and the sales proceeds are $2,000 that they can report on their taxes. Please confirm you received 25% of the ownership in the home in return for the $4,000 payment ($2,000 each to two siblings)
3) assuming the 'we' means the 7 people who own the house, technically each must report their fair share of the income and their fair share of the expenses.... you comments appear to indicate that is going to be a big wash, so probably not worth the effort, but it is technically required
4) how much did the house sell for when you and all the in-laws sold? what was the mortgage balance - $20,000? - when the house sold?
5) why did you pay off the mortgage on behalf of the others? that could be construed as a gift with no further tax implications
6) your sweat equity (labor) has no tax implications - there is nothing to claim.
7) was there a closing statement from a lawyer's office detailing the recent transaction and indicating how much CASH each of the in-laws and you received?
