2006 Gift of Equity

My husband and I gave our daughter in 2006 a gift of equity of $30,600 on a house in Idaho we owned but never lived in. We never received a 1099-S and thus never did anything with this at tax time that year. Now we are being audited. We bought the house initially at $125,900 and the purchase price ended up being $153,000 (which included the gift of equity). 1. Can both my husband and I each deduct $12,000 ($24,000 total) from the gift of equity before determining any capital gains? 2. What forms etc. do we need to fill out to undo this misunderstanding in 2006?