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If you sell a house for less than fair market value to a relative, the difference between the "sales price" and the fair market value will be treated as a gift. If the sales price is less than original basis (purchase price + improvements), there will be no capital gains to report (or tax for that matter). However if the amount of the gift is more than 14K, the current owner (not you) will have to file a gift tax return. Unless your sister already made gifts of 5.43M, she will be able to use the her life time gift tax exclusion and will not have to pay any gift tax.
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