Thank you very much for the quick response. I would like to ask opinion from you or others out there, about the gift of equity. I have been researching a lot and found different contradicting opinions.

Taxpayer inherits home and sells to niece at a loss. Since she is not his "related" party, he should be able to claim the loss. There is also involved a gift of equity to her involved in the loss. In computing Taxpayer's adjusted cost basis, which I have as FMV date of death and costs to sell. Can I also add the gift of equity to the niece to Taxpayer's adjusted cost basis? This does increase the loss he already has.