Gift of Equity/Sale Price

It's part sale and part gift. There is info in some IRS Pub on this.

Looks like a sale of $238K to me.  Or you could argue substance over form, and call it a sale of just under $217K but they had to jack up the price in order to get the mortgage so the parents could walk away with $214K.  Adding the "gift" to the "cost of sale" means telling the bank one thing and IRS another.  But the bank knows what's going on, and apparently the appraisal came in high enough.  The actual reduction in cost isn't much more than the commission they would have paid, and maybe the discount for a quick sale.

No gift tax, both parents have an $18K annual exclusion, as long as they didn't make other large gifts to the kid last year.  

For an interesting Tax Court case involving a son who gifted his home to his parents (who had helped him buy it, years earlier), see Fiscalini:

https://casetext.com/case/fiscalini-v-commr

Judge Chiechi allowed him to reduce the agreed sales price of $975K by the "gift" of $295K.  

$214,218, unless their Basis is less than that.