it might be better to sit down with an accountant as this is hard to decipher, but I will give it my best shot:
1) the house was worth $205,000 as of the date of death (you were not clear if the appraisal was at the time you put it on the market or at the date of death - that distinction is VERY important) - but I am assuming at the date of death. That is $25, 625 split 8 ways
2) there was a mortgage of $24,800 remaining on the house. that is $3,100 split eight ways
3) You purchased a 25% interest for $4,000. (two shares) Really, you paid $5,100 for the share and took on the obligation of $3,100 for each share you bought and that nets to the $2,000.
4) the house sold for $190,000. You can reduce that by the closing costs, but for simplicity I will assume no closing costs. That is $23, 750 split 8 ways. (I didn't deal with the $5,000 AC holdback, but assuming that money was spent, the the house really sold for $185,000 and all the sale numbers can be reduced by $625 split 8 ways to reflect that)
5) your wife has a capital loss of $23,750 - 25, 625 or $1,875. that can be placed on her taxes.
6) you have a capital gain of $23, 750 - $5,100 or $18,650 TIMES 2 or a gain of $37,300. Assuming you kept all the rents, that increases your gain and assuming you paid all the maintenance expenses, that reduces your gain. Again, your 'sweat equity' is not part of the equation.
does that help?
