What year did they gift you the property and was it ever your primary home for two out of five years prior to date of sale?
The basis of a gift is the Adjusted Basis of the donor at the time of the gift. I am assuming that the Fair Market Value was higher and that they paid no gift tax. If neither is true see below.
Property
Received as a Gift
To figure the basis of property you receive as a
gift, you must know its adjusted basis (defined
earlier) to the donor just before it was given to
you, its FMV at the time it was given to you, and
any gift tax paid on it.
FMV Less Than
Donor's Adjusted Basis
If the FMV of the property at the time of the gift
is less than the donor's adjusted basis, your basis
depends on whether you have a gain or a
loss when you dispose of the property. Your basis
for figuring gain is the same as the donor's
adjusted basis plus or minus any required adjustment
to basis while you held the property.
Your basis for figuring loss is its FMV when you
received the gift plus or minus any required adjustment
to basis while you held the property
(see Adjusted Basis earlier).
If you use the donor's adjusted basis for figuring
a gain and get a loss, and then use the
FMV for figuring a loss and have a gain, you
have neither gain nor loss on the sale or disposition
of the property.
Example. You received an acre of land as
a gift. At the time of the gift, the land had an
FMV of $8,000. The donor's adjusted basis was
$10,000. After you received the land, no events
occurred to increase or decrease your basis. If
you sell the land for $12,000, you will have a $2,000 gain because you must use the donor's
adjusted basis ($10,000) at the time of the gift
as your basis to figure gain. If you sell the land
for $7,000, you will have a $1,000 loss because
you must use the FMV ($8,000) at the time of
the gift as your basis to figure a loss.
If the sales price is between $8,000 and
$10,000, you have neither gain nor loss. For instance,
if the sales price was $9,000 and you
tried to figure a gain using the donor's adjusted
basis ($10,000), you would get a $1,000 loss. If
you then tried to figure a loss using the FMV
($8,000), you would get a $1,000 gain. .
FMV Equal to or More Than
Donor's Adjusted Basis
If the FMV of the property is equal to or greater
than the donor's adjusted basis, your basis is
the donor's adjusted basis at the time you received
the gift. Increase your basis by all or part
of any gift tax paid, depending on the date of
the gift.
Also, for figuring gain or loss from a sale or
other disposition of the property, or for figuring
depreciation, depletion, or amortization deductions
on business property, you must increase
or decrease your basis by any required adjustments
to basis while you held the property. See
Adjusted Basis earlier. .
Gift received after 1976. If you received a gift
after 1976, increase your basis in the gift (the
donor's adjusted basis) by the part of the gift tax
paid on it that is due to the net increase in value
of the gift. Figure the increase by multiplying the
gift tax paid by a fraction. The numerator of the
fraction is the net increase in value of the gift
and the denominator is the amount of the gift.
The net increase in value of the gift is the
FMV of the gift less the donor's adjusted basis.
The amount of the gift is its value for gift tax purposes
after reduction by any annual exclusion
and marital or charitable deduction that applies
to the gift.
