House as a gift question

A few points to be made;

1) There was a better way at the time to transfer the house, and avoid potential capital gains. By gifting the house the way your mother did, your sister would have potential tax due if she sold it. Water under the bridge, I suppose. 2) It was a gift, not a donation. This may sound pedantic, but there is an important difference, and in financial matters, it's important to use correct terminology. 3) Upon your sister passing, you receive the house with a stepped up basis. i.e. your basis ('cost' you would use if you then sold it) is the value on the day you inherit the house. Her estate exemption is $2 Million this year and next, $3.5 Million in 2009, unlimited in 2010, and if the law isn't fixed, back down to $1Million in 2011. She can gift you $12,000/yr if her estate is so large and she doesn't need the money now. I hope that helped. JOE

Perhaps the simplistic answer is that what happened between your mother and sister 17 years ago is well past the statute of limitations. If the house was worth more than the annual exlusion at that time, someone should have filed a gift tax return. Unless your mother had used up her lifetime exclusion at that time, no gift tax would have been owed anyway. Assuming the gift from mother to daughter was recent, engage a tax practioner to file the necessary gift tax forms and have her pay any gift tax due...again, if your mother did not used her lifetime gift allowance, she likely will owe no tax either if values are under $1,000,000. If your sister dies and you inherit the house, your basis in the house becomes the basis elected by the executor which is either the value on date of death or 6 months later, and no tax is triggered owed by you. Mike

Was it transferred in her sold name or in joint tenancy? Was the deed actually recorded?

It's your mother's estate that would have had to account for the gift and/or estate tax on the gift of the house to your sister. If her total estate was under $1,000,000 (including the value of the house) there wouldn't have been any tax to worry about. As far as your sister's tax basis, that could be complicated. Did your mother reside in the house until she died? Was the deed in joint tenancy or in your sister's sole name? Was the deed recorded? Did your sister know about it at the time? Was there an agreement that, in spite of the deed, your mother would be allowed to live there for the rest of her life? Based on the answers to these questions (and perhaps other depending on the answers) the basis in your sister's estate will either be your mother's basis, or the value at your mother's date of death. As far as estate taxes for your sister, again if her total estate is under $1,000,000 in value (or more if she dies before 2011) there will be no estate tax. Stu

If no gift tax return was filed, the statute of limitations hasn't run on that gift. On the other hand it should have been included in the mother's estate, and it if was then it doesn't really matter. Stu

Thanks Joe, I've got lots to think about now!! Best, Bob