"They used the money to buy a rental property in NJ for $198,000."

Are you mentioning this in anticipation of a 1031 exchange, which had to be done "like property for like property" in advance of all of these transactions? Or, are you thinking of the rule that expired about 30 years ago regarding investing more than the gain in a new property, to avoid tax on capital gain?

Neither of these will apply.

Sometimes people just make money and have to pay the taxes on that event.