I am in the process of preparing on my aunt and uncles 1040. They sold their primary house to their daughter in 2023. According to the closing document they sold it for $450K (FMV), the settlement statement also has a line called Gift of Equity for $168K which assisted their daughter to meet the 80% loan to FMV and my aunt and uncle were paid out $168K less at closing. Their basis in their house is purchase price plus improvements totaling $300K. Want to make sure I show this correctly on their return (also related party transaction loss isn't allowed). They said they never received a 1099S and they called the closing attorney and they said they didn't file one. So not sure if I need to report it as it is under their exemption but I need to file the 709 so I figured best show it on their 1040. I could be wrong and not have to show on their return. If I do show it not sure if the sale is really $450K if they gifted $168k. Do I decrease the sale price or increase the cost basis by $168K or is it considered selling costs?   

Second question is on the 709  -  the gift is $168K so I would show this amount on Schedule A part 1 Item F (value at date of gift) and this will split 50/50 for item G.  But what gets me hung up on is item D the donor's adjusted basis of gift.  Is this the actual basis in the house of $300K or is the $168K or is it 37% of their basis (gift/fmv) .  Any assistance would be greatly appreciated.