In Arizona, do you pay capital gains tax on state taxes when a parent gives a home to a child?

[dan10]

Last year my wife's parents gave her the Arizona home that we had long been living in. Three months later, we sold the home. We are going to have to pay capital gains tax on our federal return. We talked to an accountant in Arizona who told us that in Arizona you don't have to pay capital gains tax on the sale of a home that is a gift from your parents (when filing state taxes). I have lost my notes on that conversation. Does anyone know if this is true, or have any details?

[CherylW]

If it was a personal residence, you don't have to pay federal capital gains tax on it because it's NOT a capital gain.  Only if you used it to produce income or held it for investment would you have to report it.