what occured was part sale part gift. so IRC sections 267 and 1015 determine the reporting
if the $3,000 sales price was less than her basis the loss would be disallowed under IRC 267.
if the fair market value exceeded her tax basis by $16,000 she should have filed a gift tax return form 709.
good news. under IRC 1015 your basis is her basis (plus the costs of any improvements made by you after the gift) unless her basis was greater than the fair market value of the property at the time of the gift, then for the purpose of determining loss the basis shall be such fair market value (+ cost of post-gift improvements). for determining gain you use her basis (+post-gift improvements). more good news is that you use the date she acquired the property for determining long-term vs short-term
