she'll have to file a gift tax return because she gifting you 1/4 million but there it's unlikely she'll have to pay a gift tax since the lifetime exclusion is in excess of $12 million.
your basis for determining gain or loss if you sell.
Where a transfer of property is in part a sale and in part a gift, the unadjusted basis of the property in your hands is the sum of -
(1) Whichever of the following is the greater:
(i) The amount paid by you for the property, or
(ii) her adjusted basis for the property at the time of the transfer, and
(2) The amount of increase, if any, in basis for gift tax paid (see § 1.1015-5).
For determining loss, the unadjusted basis of the property in your hands shall not be greater than the fair market value of the property at the time of such transfer
she has to report the sale on her tax return following these rules see example
Where a transfer of property is in part a sale and in part a gift, she has a gain to the extent that the amount realized by her exceeds her adjusted basis in the property. However, no loss is deductible on such a transfer if the amount realized is less than the adjusted basis.
Example
She transfers property to you for $600,000. assume her basis in the property is $400,000 (and a fair market value of $850,000). her gain is $200,000, the excess of $600,000, the amount realized, over her basis of $400,000. she has made a gift of $250,000, the excess of $850,000, the fair market value, over the amount realized, $600,000.
if a gain, she will qualify for the home sale exclusion of $250,000 if she owned and occupied the house for any 2 out of up to 5 years before transfer.
better check with the mortgage company because most mortgages have a due-on-sale clause which means she'll have to pay off the full mortgage. but it is up to the company.
while this can be done without a real estate attorney, the use of one is advisable so there are no surprises down the road,
