Since the mortgage was assumed, this scenario is part-gift, part-sale, but there are no income tax consequences for the donor because the basis ($250,000) is greater than the balance of the mortgage ($210,000).
The value of the gift is the fair market value of the property at the time of the gift less any encumbrances (such as the mortgage).
As a result, the value of the gift is the fair market value ($400,000) less the mortgage balance ($210,000) or $190,000. Note that the assessment by the city should not be used to determine fair market value at the time of the gift; an appraisal would be optimum or at least a competitive market analysis (CMA).
