Apparently, I must be missing something here. I don't see any "gift" here. But I do see a taxable gain to you, that you have to pay taxes on.
While you owned the property, you were required to depreciate that property for every year it was classified as a rental. When you sold the property (regardless of who you sold it to) you were required to recapture that depreciation and pay taxes on it. So you actually have a taxable gain on the sale.
Your proceeds from the sale were used to pay off the existing mortgage of $150K, leaving you with $50K cash.
