Capital gains tax on proceeds from parents home

[Keith Andrews]

I am hoping a BiggerPockets tax guru can help shed some light on things for me.

My wife’s parents added her and her brother to the title of their primary residence in 2008 (because they were paying the mortgage for them). They originally bought the home in 1980 for $100k. Throughout the years they pulled money out increasing their debt on the house to $300K. They just sold the house for $1M. My wife will receive 25% of the proceeds which equates to about $150k after everything. My questions are the following:

1. Will we have to pay capital gains on $150K or 25% of the gain from 100K to 1M? Or would it be the value of the house when she added the title in 2008?

2. Since this house was her parents primary residence (my wife hasn’t lived in the home for 15 years), is it eligible for a 1031 exchange or any other tax shelter?

Thanks!