I'm just an individual, not a tax advisor, but I've had some experience with gifting within families and rental property. The problem is, you did receive these gains tax-wise the way you explained the deal to be set up (you then gifted the amount you received to your daughter). As the other person said, you definitely need to file that gift transfer form - you aren't allowed to just give money away to someone above the yearly limit without this. Overall, it sounds to me like a big problem situation. Any chance you lived in the rental house 2 or the last 5 years? Then it might be called your home not a rental. In my personal opinion, the thing to have done would have been to have sold it for a lower price, and then gift the "equity" in the gift transfer form, as home sales are exempted from the first $250,000 of capital gains when your daughter next sells it, but rental property are investments so are not. Any chance any of these real estate documents about the price could get changed, and are you sure the rental house sale paperwork has to get interpreted that way? Filing for a tax extension and checking with a lawyer might be something to consider. Also If somehow you sold at the end of last year, it is allowed to reinvest the capital gains in another rental property but only within 6 months of the sale. Overall, this is either a costly or complex problem. Also, when figuring out the basis for the rental property, be sure to include in it any money put into major improvements over all the years you owned it. Sorry you have this mess.
