I concur with Critter#2, your mother has no capital gain to report for income tax purposes. She does not even have to include the sale on her income tax return, if she normally even files a return.
Her gift of equity to you is $134,000 ($220,000 - $86,000) and that is the amount that needs to be reported on the gift tax return. "Gift
Tax" is somewhat of a misnomer. Even though a gift tax return
may be required, very few people ever actually pay federal gift tax. The
purpose of the gift tax return is usually only to document a reduction in the
allowable estate tax exemption. See https://turbotax.intuit.com/tax-tools/tax-tips/Tax-Planning-and-Checklists/The-Gift-Tax-Made-Simple/...
Your cost basis, in the property, for when you sell it in the future, is NOT the $220,000 it was worth, at the time of the gift. It is also not the $86,000 you paid. Your cost basis is $123,000. The rule, for a gift, is that the recipient's basis is the giver's basis.
