@Anonymous_ --
Jack's parents' home is worth $200,000.
Parents sell the home to Jack for $175,000 - thus giving Jack a $25,000 gift of equity.
Years later, when Jack sells the house, his cost basis is $175,000.
The gift of equity reduced Jack's out-of-pocket cost at purchase, but also added $25,000 to his potential capital gain when he sells the house.
**Answers are correct to the best of my ability but do not constitute tax or legal advice.
