gift or purchase

[POSRIP]

I purchased my mothers N.J.home 3 yrs ago for $1. She lives with me and I care for her as she is 93 yrs old and bedridden. I have a sister whos name is not on the deed for reasons that no longer apply now. My mothers Will states each of her children shall get equal distribution of her estate. I plan on selling the house after my mother passes on to give my sister her fair share.

Is the $1 sale price considered a gift from my mother to me. If yes does she have to pay gift tax on the difference between her cost basis ( $200,000) and the fair value of the home? ($6000.00 ) = $400,000 ( I know she has to file the gift form but will she be liable for gift taxs?)

If I sell the home and gift 1/2 the selling price to my sister (300,000) will I have to pay gift tax?

Should I add my sisters name to the deed now as I understand the IRS does not search titles when the home is sold.
If yes then what would be her tax liability as she does not live in the house and could she also take the $250,000 credit I would get. Is there a better way to do this?
I originally posted in the wills and estates but was told to post this here.

[anteater]

Originally Posted by POSRIP

I purchased my mothers N.J.home 3 yrs ago for $1. She lives with me and I care for her as she is 93 yrs old and bedridden. I have a sister whos name is not on the deed for reasons that no longer apply now. My mothers Will states each of her children shall get equal distribution of her estate. I plan on selling the house after my mother passes on to give my sister her fair share.

Is the $1 sale price considered a gift from my mother to me. If yes does she have to pay gift tax on the difference between her cost basis ( $200,000) and the fair value of the home? ($6000.00 ) = $400,000 ( I know she has to file the gift form but will she be liable for gift taxs?)

If I sell the home and gift 1/2 the selling price to my sister (300,000) will I have to pay gift tax?

Should I add my sisters name to the deed now as I understand the IRS does not search titles when the home is sold.
If yes then what would be her tax liability as she does not live in the house and could she also take the $250,000 credit I would get. Is there a better way to do this?
I originally posted in the wills and estates but was told to post this here.

All this pertains to federal taxation. I don't know Jersey, but I seem to recall that NJ is more stingy than the Feds in this whole area.
1) Your mother made a gift to you.
2) The value of the gift was the fair market value of the home 3 years ago. Mother's cost basis does not matter in valuing the gift, but......
3) You take on mother's cost basis.
4) Unless your mother has made other substantial reportable gifts above the annual limit over her lifetime, no gift tax would be due immediately. And, if the home was her major asset, there likely won't be any federal tax due ever.
5) You are now the owner. However you cut your sister in -- add her to the deed now, sell and give her half the proceeds -- it is a gift to her.
6) If you have owned it and lived there 2 of 5, you are eligible for the capital gains exclusion. If your sister has not, she is not eligible.

In as few words as possible, there is a $1M lifetime credit for gifts. Reportable but not immediately taxable until you go over the $1M. But that credit is unified with the estate tax credit. Eating away at the $1M gift credit uses up part of the unified gift and estate tax credit. Ultimately, whether any tax actually is due depends on the eventual size of your estate and the tax laws in effect when you pass away.