Legal Question in Real Estate Law in California

Re: Selling??

First, with the amount of money at stake here, in my opinion your mother should have independent legal counsel. This reduces any possibility that what appears to be a gift of her equity in her house could be challenged later as being coerced or invalid because of undue influence or elder abuse. Counsel could also advise her about the gift tax consequences of what she's doing and offer suggestions that might better preserve her estate and lessen your overall tax impacts.

It rather sounds as though the mother is making a gift of her interest in the existing house. The IRS treats gifts, estates and generation-skipping transfers on a combined basis so there is little possibility of avoiding estate taxes by making large gifts of this kind, although small annual gifts do enjoy an exclusion.

In my opinion, your mother's interests need better protection and the apparent gift is perhaps unwise unless she receives independent legal advice and has some assurance of a place to live.

As far as capital gains taxes, there are now much broader exclusions than formerly. Nevertheless, they apply only to places used as 'primary residence' two of the last five years, so to the extent you are a non-resident investor in a house, you cannot claim the exemption on the gain on your interest. However, you could in some circumstances perhaps deduct depreciation and other expenses.

Again, pretty big bucks are involved here, and some professional tax and/or estate planning would be a prudent investment. An advisor interviewing you in person can be more helpful than a bulletin board service.