1. So there would no gain for her and she can't claim loss either if I understand you correctly.
correct.
2. When you mentioned she'll have to file a gift tax return, is it part of 1040 tax return or a separate gift tax return in addition to 1040 return? Because of lifetime gift tax exclusion, it will not incur tax for her as I understand you.
That's a separate return (form 709) that Turbotax does not do. I assume she still has most if not all of her lifetime exclusion. it only gets used in years where gifts to a person exceeds the annual exclusion. she would have had to file gift tax returns for those years.
https://www.irs.gov/site-index-search?search=709&field_pup_historical_1=1&field_pup_historical=1
3. My unadjusted basis for determining gain or loss if I sell in the future should be $615,000 in this case, correct?
correct IRS reg 1.1015-4 and reg 1.1001-1(e)
4. I actually don't understand the paragraph: The amount of increase, if any, in basis for gift tax paid (see § 1.1015-5). Does this apply to my case since no gift tax paid? I thought not, so I didn't add to my unadjusted basis.
it's unlikely any gift tax will be paid so that number would be zero. where there is a gift tax it adds to basis but can't increase it above the fair value
