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Thank you for giving me the opportunity to assist you. I will give the best answer that I can with the information provided.
Unfortunately, this is all your sister's income (assuming that she is the only owner of the house), and the law does not allow for deductions of gifts to family members. Since California is a community property state, the proceeds will be income on their joint return, or reported 50/50% on separate returns if they file separately.
If I remember correctly, you sister is gifting the proceeds to respective siblings. As such, the siblings (recipients of gifts) will not incur any income taxes on what your sister disburses to them.
Please let me know if you have any additional inquiries.