Capital Gains on Sale of A Gifted Property

[Mickey Bauer]

My in laws gifted my wife a lake cabin property. It is currently in her name legally, but remains under the 5 year lien window for about a year which would allow a healthcare provider / assisted living  etc to access the value of the property. My thought is to sell our primary residence, move into the lake property for at least the two years required, then sell it.  Assuming we pass the time frame still in force on the lien, would this plan allow me to avoid paying capital gains taxes even though the cabin was a gift, rather than a property we purchased? Also, would there be any taxes on the equity earned from selling our current residence since we would not be purchasing another home using that equity gain? 

[Dave Foster]

@Mickey Bauer, You would qualify.  @Natalie Kolodij gave you an example if the gain was more than $500K on the lake property since your basis is at your parent's original basis and that was a long long time ago.

Of course what we're all asking is why the heck would you ever want to leave the lake house :)