You mention that your mother-in-law died and left the house to her children but follow that with an indication that the house is now owned by your father-in-law, who from context seems to be living. The suggestions that she bequeathed the property but someone else owns it legally seem at odds.

Who actually owned the home at your mother-in-law's death and how was it titled? The second question is relevant as some states permit various types of ownership that transfer at death, for example joint tenants with rights of survivorship.

You cannot address the income or gift tax implications until those points are clear. Nevertheless, in the hypothetical instance of children inheriting a home outright from a parent, the children's initial basis in the home is its fair market value at date of death (of possibly an alternative valuation date six months after date of death). This means that where the home is sold shortly after it is inherited, there should be little or no taxable gain.