How can my sister and her husband get their capitol gain tax exempt on $500,000.00 capitol gain?

Since your sister used the home for nonresidential purposes, a portion of the gain will be taxed regardless of the amount.  Further, since your sister depreciated the house, a portion of the gain will be taxed to recapture the depreciation.  First you compute the gain on the sale of the house. Then you subtract from the gain the amount of depreciation taken on the house.  This amount of gain will be taxed at no more than a 25%  income tax rate.  Second, you will compute a fraction. The numerator will be  the amount of time the house was used for nonresidential purposes beginning in 2009 up until the date the house was used as a residence. The denominator will be the entire time the house was owned by your sister, beginning in 1997. You will multiply the total gain, before exclusion  of the depreciation, by this fraction to determine the amount of gain taxed, which will be taxed at no more than a 15% income tax rate. You then subtract this gain from the remaining gain after subtracting out the depreciation.  Any gain left will be eligible for the $250,000/$500,000 gain exclusion  available  if your sister used the home as her primary residence  for two out of five years before sale.  My answer assumes your sister uses both halfs of the duplex  as a residence.