Thank you for you question.
This will be a discussion of how this sort of thing is handled in the U.S.
1. When she sold you the house for 1 dollar, technically, because she sold it to a relative, the Internal Revenue Service would have considered the balance of the Fair Market Value, a gift, a gift of equity in the home. As a gift, you would technically retain her adjusted cost basis as of the date of the gift. The one dollor is insignificant.
2. When she gifted you the equity in the home, a gift tax return should have been prepared; Because the gift was less than one million, she would not have to have paid a gift tax, but she would have still been required to file the return.
3. When she dies, since you already own the home, and when you sell the property, you will be subject to capital gains tax. The formulas for capital gains tax follow:
If you use the price you paid for the property, 1 dollar:
Capital Gains = Sale price - (what you paid for the property, + improvements, + major repairs) - cost of selling.
As you can see, if you sell the home for 250,000 dollars, you will have a 249,000 dollar capital gains, on which you have to pay 15% tax. (more about this in your situation later).
Capital gains on a Gift: Now, as I said, you can consider this a gift of equity. So on the gift portion, as of 20 years ago, the cost basis is the adjusted cost basis of the donor, your mother. for aurguments sake lets say the home, is now still valued at 250,000 if you sold it. And assume that property doubles about every 10 years on average. We can then assume that on a 250,000 dollar home, the property may have cost in the range of 62,000 when it was first purchased. In the time she owned the home she may have made improvements and major repairs, so lets pout the adjusted cost basis at 75,000. Your formula now looks like this:
Capital gains for selling a gifted property= 250,000 - (75,000 + improvements in the pst 20 years, + major repairs in the pst 20 years) - cost of selling.
So now, in this scenario, you are paying capital gains of 15% on not more than 175,000 (minus the other expenses I mentioned).
NOW If you inherited the property instead: When you inherit property, there is, in the United States no inheritance tax on the federal side. Her state may have one, but there are exclusions and reductiosn for amounts of inheritance by close relatives. Not every state has an inheritance tax. But since I do not know your state, I am only going to address the primary issue,the capital gains tax.
When you sell an inherited property, your cost basis is either the Fair Market Value or the Appraised Value of the property as of the date of death. If the propery is sold in close proximity to the date of death or date of inheritance, there is likely to be little if any rise in FMV, and so it will be sold, most likely, in the range of slightly below, at, or slightly above its FMV, leaving very little if any capital gains tax exposure.
so now your capital gains on this property, that we are assuming may sell at 250,000 dollars looks like this:
Capital gains on inherited property that is sold = 250,000 -( 245,000 (FMV at time of death), + Improvements, + major repairs)- cost of selling.
You can see your capital gains exposure is now only 5,000 dollars and will actualy be nil, because...the cost of selling will be bout 6% in realtor fees and advertising.
So, as you can see, how you received the property makes a big deal for you later on.
What should have been done? There are ways that a property could have been placed in a trust that she had no direct control of, which would have served the purpose she needed. It may not be too late to unwind this deal and to accomplish the same end. You would need to sit down and have a talk with a trust attorney in the United States to discuss how this might be done.
What can be done now: In the U.S., you can get a capital gains exclusion from the sell of a home if you can make the home your primary residence for 2 of the past five years, while you also own it. Those two years do not have to be consecutive months.
I do not know what your mobility is, but if you could come to the U.S. for a few months each year and make this your primary residence for those months, then over the next 5 years you might total 2 years worth and be able to take a capital gains exclusion when it becomes time to sell.
Another possiblity is to gift the property back to her after visting the attorney I mentioned earlier.
By the way, are you a U.S. Citizen?