There is nothing wrong, as far as Islam is concerned, that you share your family’s happiness in Christmas as long as you steer clear of what is prohibited in your religion (such as a table where alcohol or pork is served) and specifically religious rituals.
In this regard, Dr. Jamal Badawi, Member of the European Council for Fatwa and Research and the Fiqh Council of North America, states the following: Participating in the non-religious aspect of Christmas such as family reunion dinner or visitation is OK. Attempts should be made to avoid situations where alcoholic drinks are served on the same table. Kindness to parents and family without compromising one’s beliefs is an Islamic duty. During socialization and whenever appropriate, one may share one’s thoughts [on religion] with them, preferably in answer to their questions or comments without being too argumentative.
Moreover, Sheikh Ahmad Kutty, a senior lecturer and Islamic scholar at the Islamic Institute of Toronto, Ontario, Canada, adds: As Muslims, we are allowed to partake of their feasts and celebrations so long as we stay away from their specifically religious rituals, and so long as we are clear in our mind that Christmas has nothing to do with the original teaching of Jesus (peace and blessings be upon him).
While remaining steadfast to your beliefs about Jesus, we are allowed to join them in their feasts in order to reciprocate kindness with kindness. By doing so, we may even be helping them remove their misconceptions about Islam being a fanatical religion. So we can go ahead and participate in their feasts and let them know the true image of Islam.