If you and your sister own the house, the proceeds are yours and have nothing to do with your mother or her eligibility for Medicaid. However, it sounds like your mother might have retained a life estate when she deeded the property to you. If that is the case, she’s also an owner and should receive a share of the proceeds based on her age. The older she is, the smaller her share.
Harry S. Margolis practices elder law, estate, and special needs planning in Boston and Wellesley, Massachusetts. He is the founder of ElderLawAnswers.com and answers consumer questions about estate planning issues here and at AskHarry.info.