Legal Question in Real Estate Law in California

Making gifts of property between parents and children while the parents are alive is almost invariably one of the most massive mistakes you can make from a tax standpoint, as you are finding out. I am very confused as to why the capital gains taxes would be any different under your name or your parents. Since no value was given at any step in this, the tax basis for the capital gains should be what they paid for it, plus capital improvements that were depreciated, less depreciation deductions that were taken. It should be a long term capital gain no matter what. If you do give it back to your parents, the form of deed makes no difference in your situation (although Warranty Deeds are basically non-existent in California; we use quit claim deeds and grant deeds). Since the mortgage is in your name, however, you have a problem with granting the property back to your parents, because it will trigger a due on sale clause that is almost certainly in the mortgage documents. Bottom line is that you have created quite a serious mess (we haven't even talked about unpaid gift taxes that might be due). All I can suggest is that you find a CPA who is highly experienced in both real estate taxation AND estate planning and taxation and get their advice on this.