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@Love2Cruise wrote:

• When reporting the sale of the home, do I reduce the sale price by the gift of equity and the mortgage payoff, or just the gift of equity?
• If the mortgage was still in the mother's name, would that be an expense?
• If the above is correct, what's the workaround if the 1099 was issued for the full sales price?

I'm also preparing a 709 since the gift of equity is over the limit by $2496. Is this correct as well?

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Just the Gift of Equity.

No.

To avoid an IRS notice, you would probably want to add it to Selling Expenses.  Adding to Basis would have the same effect.

Yes, Gift Tax returns would be required, probably two of them (one from each spouse).