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<<My daughter & son-in-law have a house they are using as
rental property/ They only lived in the house for about a year.
Now they are looking at selling it, but they want to know if they take the profit and reinvest it into another rental property, what will be their tax liability? >>

Zippo!

As long as they proceed correctly. The sale of an investment property and the subsequent, timely purchase of another investment property falls under section 1031 of the IRC. It is called a 1031 Exchange. In essence, you are defering the payment of any capital gains on the sale of the property. If you plan correctly, you can avoid paying any captital gains for an infinite amount of time. I am hardly an expert on an exchange as I have not yet fully researched the procedures. There are plenty of resources on the net.
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