let's see if I got this right. say the purchase price of the home is $100K including closing costs. you will put $10K down and so will your sister. I don't see a gift because she ends up with co-ownership with you and has paid $100% for her share of the equity at the time of purchase. each of you will own 50%. however, you will then be obligated on an $80K mortgage.
say you pay off the entire mortgage
do you mind paying $90K for the house but only owing 50% while your sister only pays $10K and also owns 50%? of course, you do get the deduction for all the mortgage interest. nothing in the tax laws says you can't do this.
say the house was later sold for $200K. you end up with $100K-$10K-$80K=$10K but are tax on 50% of $100K profit. Your sister ends up with $100K-$10K=$90K and is also taxed on $50K of profit. again nothing in the tax laws says this is improper. we are not lawyers but if I had to guess there's nothing illegal about this.
the actual numbers will vary in part because you may sell the property before the mortgage is fully paid off.
