Thank you all very much for your time.

"or not?"

Not.   Gifting to a relative is not deductible (unless that relative is a not-for-profit).

IRS considers it 2 transactions: part sale (with proportional basis); part gift with carryover basis.

Assuming full value is $320,000 IRS considers approx 75% to be a sale (of 75% of their basis) and 25% to be a gift.

The 75% purchased gets new basis to purchaser; the 25% gift gets carryover basis to donee.

Good answer - I read the question *they sold the house, gave her cash*.
I really shouldn't answer questions until all the coffee is on board

They sold the house for 325,000, the settlement sheet shows 81,250 "gift of Equity from sellers", with  a balance of 243,000 loan amount from buyer.  So how do I report this?  I probably shouldn't ask questions until all the coffee is on board also.  

I think we had a similar discussion a couple years ago and @TaxMonkey had a great cite for it.  I remember the regs being counter-intuitive to me but I don't remember what they said. 🙂

Marc. Taxman if you have a chance please review the thread linked below, and 1.1015-4.  I do not believe that your answer is consistent with the Treas Reg.