Real Estate law is based on State law, not Federal.
It would be best to speak with a local real estate attorney in the area where the house was located.
If your wife and her brother INHERITED the house, their basis in the house would be the value of the home on the day of the mother's passing. Your wife and her brother would each have a basis of 1/2 the value of the property on the date of death.
In that case, if the house was sold soon after, there would be no tax due on the sale of the house unless value sky-rocketed between the date of death and date sold.
If your wife and/or her brother had any ownership rights before the mother passed, it could be a capital gain.
Inheritances are not taxable to the person that inherited the property.
When the property is sold there COULD be capital gains.
According to the IRS:
"To determine if the sale of inherited property is taxable, you must first determine your basis in the property. The basis of property inherited from a decedent is generally one of the following:
- The fair market value (FMV) of the property on the date of the decedent's death (whether or not the executor of the estate files an estate tax return (Form 706, United States Estate (and Generation-Skipping Transfer) Tax Return)).
- The FMV of the property on the alternate valuation date, but only if the executor of the estate files an estate tax return (Form 706) and elects to use the alternate valuation on that return. See the Instructions for Form 706."
- "If you sell the property for more than your basis, you have a taxable gain."
IRS Link
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