You should also connect with a tax planner/CPA regarding the pros and cons of having an LLC vs trust vs individual.

I use John Rosenbohm CPA 309-565-8268.

He has connections to trustworthy Agents, contractors, CPA's, and lawyers, and of course, he would manage my property(ies) for me.

I personally did a double major in accounting and finance and while I do not practice accounting as a CPA or bookkeeper or anything it has helped me tremendously to navigate real estate and understand the tax code or where to find answers to tax questions.  

If you can’t get Dave or someone else to say (like your CPA) they’re confident you’d be ok.

She will likely be exempt from capital gains tax since she lived in the house for 2 of the last 5.I think she may need to be paid in full before that 5 years runs out to get the full exclusion.I'd consult a CPA to know for sure the tax implications. 

I've always been curious on this one as I run into a ton of folks that did taxes incorrectly on turbotax/h&R/etc...and for the question, I think reaching out to a local CPA or to Michael above and just paying for it may be far easier than trying to deal with the IRS yourself.

Talk to a cpa that specializes in taxes and they can help you out. 

*This post does not create a CPA-client relationship.

I'm not a CPA but I have worked with a lot of out of the country investors over the years.