I appreciate the accept, and I'm glad you have asked a follow up question. Please know that you may ask as many follow up questions as you need at no further charge, ok?
I think I mentioned in my first answer that if you pay off the mortgage while it is still in your mother's name (meaning that technically, you are not legally responsible for the debt), then you are in fact, giving a gift to your mother in the form of a paid debt.
Unfortunately, there is no way to "net" your gift of the mortgage out of the value of the home, however, your mother (as do you) has a lifetime gift exclusion of $1million before any gift tax would ever be due. Additionally, no one needs to report a gift until it exceeds $13,000/person/year. That means you can pay up to $13,000 of your mother's mortgage, or she can "gift" you money or property worth up to $13,000 per year with no reporting
requirement. as long as you have not exceeded the $1million lifetime exclusion. If you are married, and have children,your mother may "gift" up to $13,000 to each member of your family before there is any gift reporting requirement, and no gift tax is ever due unless you or your mother exceed the $1million dollar lifetime exclusion.
Please see below:Publication 950 (9/2008), Introduction to Estate and Gift Taxes
There is also no way to net out free rent. However, unless the home has fallen in value (since you said it was roughly worth $700,000 today), all of this is a moot point anyway. Even if your mother's gift of the home to you exceeds her limit of $13,000/per person/per year, she still has the $1 million lifetime exclusion for gifts. Hence, no actual gift tax would be due on the transfer of the home.
Although there is no way for you to net out the value of the free rent, you may deduct mortgage interest
you pay on 2 homes on your Form 1040 (Schedules A) Itemized Deductions,
and all real estate taxes
paid on all properties that you own. Since you're not charging rent to your mother, this would be your only recourse for recouping some of the expenses associated with maintaining what was formerly your mother's home.
I hope this helps.