If parents had a gain on the sale but gifted a portion of the equity, they still must report the capital gain on the sale before the gift, and pay any capital gains tax. The gift may require filing of Form 709, Gift Tax Return. Parents' gain is their actual amount realized minus their adjusted cost basis.
From a tax point of view, there are two transactions: the sale of the house, followed by the gift of equity.
See this previous TT answer by a tax pro: <a rel="nofollow" target="_blank" href="
https://ttlc.intuit.com/questions/3138092-2nd-home-sold-with-gift-of-equity">https://ttlc.intuit.com...>
**Answers are correct to the best of my ability but do not constitute tax or legal advice.
