see a tax pro. unless the house was really only worth $1, extremely doubtful, your mother made a gift of equity to you and should have filed a gift tax return.
your basis is her basis + any subsequent improvements made by you.
on the date of the gift, you need to know both her basis and its fair market value (FMV).
if the FMV was greater than her basis, then you have a gain if the selling price exceeds her basis + the subsequent cost of improvements you made and is eligible for the home sale exclusion. any loss is not deductible.
If FMV on date of gift is less than basis, then your basis for gain is her basis + the cost of your improvements.
your basis for computing loss is FMV on date of gift + the cost of your improvements.
so if one way ends up with loss and the other way ends up with gain you have neither for federal tax purposes.
example FMV and tax basis include your improvements.
FMV = $60,000
tax basis = $90,000
sell for over $90,000 you have a gain for federal tax purposes eligible for home sale exclusion.
sell for between $60,000 and $90,000 you have neither a taxable gain nor loss.
sell for less than $60,000 you have a non-deductible loss.
