Just so you know and understand:
What are the consequences of purchasing a home from a family member at almost 50% fair market value......but the appraised value is almost twice the price she is selling it to us for.
FMV and appraised value are meaningless here. The only number that matters is the cost basis. That is, what your mother actually paid for the house, plus the cost of any property improvements she may have paid for during the time she owned it. That's it. The FMV and appraised value do not figure into your equation in any way, form or fashion.
If she purchased it for $100,000 6 years ago and is selling it to you now for $50,000 that's fine. She is gifting you the other $50,000 and since the gift exceeds $15,000 she is also required to file IRS Form 709 - Gift Tax Return with the IRS. Nobody will pay any taxes on the gift amount. But by law the giver of the gift is required to report it to the IRS if the amount or value gifted in any one tax year exceeds $15,000.
Your mother also can not claim a loss on the sale either. (Well, she can claim it - but she can't deduct it from her taxable income for the year.)
she is letting us purchase the house for 25k more than what is owed on the house,
What she owes on the house is irrelevant. If she is selling it to you for more than she paid for it, then she has a taxable gain. If selling it to you for less than what she paid for it, she has a non-deductible loss. it's non-deductible because blood related family is involved in this transaction. So you would be wise to seek professional help and consultation on this before any transaction occurs. This is really important if your state taxes personal income. A professional may be aware of things that could change the tax front for all involved in this transaction.
