My sincere condolences on the death of your daughter first off. I too lost a daughter so I know what the loss of a child is like.
If you did not live in the house for 2 of the previous 5 years you will have a capital gain to claim. I can only surmise your daughter did indeed live in the house or had it as her tax home for 2 of the previous 5 years so she has an exclusion on the sale of the house for which she will not be liable for tax.
If all three of you were on the deed at the time of death, you will claim 2/3 of the value of the house as of the date of death. If your daughter was removed from the deed and it was just the 2 of you, your cost basis in the house will be the fair value when you transferred ownership, provided the proper transfer was documented.
The sale reported, provided you did not live in the house 2 of the previous 5 years, will show on Schedule D as a capital transaction. The sales price as shown on the 1099-S is the starting point, then selling expenses such as real estate commission, transfer taxes, and such are deducted from that to arrive at a net sales price.
The cost basis will determine the actual gain to claim. Your cost basis will be 2/3 of the value at the time of adding your name to the deed if all 3 parties remained on the deed or the full cost basis at the time of transfer if your daughter was no longer on the deed. The mortgage balance paid does not have a bearing on the gain or loss calculation. The reasoning for this is that she would not have claimed the mortgage proceeds as income when the mortgage was taken out so there is no deduction for when it is paid.
@dglsjoslin
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