My mother and I are joint tenants with rights of survivorship for 5 houses. If she dies will I have to pay gift taxes on the houses that become my sole property?

[Critter]

If your name was not on the original deeds and you were added later then your mother had to file the gift tax returns at the time you were added to the properties (the time of the gift of ownership).  Now when she passes you will inherit her portion of the property and you will get a stepped up basis adjustment.

[Hal_Al · Accepted solution]

The simple answer to your basic question is NO. You do NOT pay gift taxes on the houses that become your sole property. You do not pay federal inheritance tax, either, unless you mother's estate is worth more than $5.49 million. Furthermore, gift tax is paid by the giver, not the recipient**.

"For 2017, the estate and gift tax exemption is $5.49 million per individual, up from $5.45 million in 2016. That means an individual can leave $5.49 million to heirs and pay no federal estate or gift tax." 

There are other issues, inherent in your question. Hence the other information provided by we commentators.

Half your cost basis "steps up" on your mother's death. It's best explained by example. Your mom bought a house in 1990 for $100,000. In 2000, she deeded half to you. Your cost basis in your half is still $50,000 (the gift recipient's cost basis is the giver's basis) and her basis in her half is $50K. When she dies, the house is worth $200,000. Your cost basis is now $150,000 (your original $50K + the $100K stepped up value of her half). 

**"Gift Tax" is somewhat of a misnomer.  Even though a gift tax return may be required, very few people ever actually pay federal gift tax. The purpose of the gift tax return is usually only to document a reduction in the allowable estate tax exemption.Your mother probably should have filed a gift tax return when she deeded you half in 2000. 

See https://turbotax.intuit.com/tax-tools/tax-tips/Tax-Planning-and-Checklists/The-Gift-Tax-Made-Simple/...

[Carl]

When you die, your heirs receive whatever you leave behind. Be it money, houses, cars, stocks. jewelry, and personal belongings. So long as what any one heir receives is less that $5.2M (five million two hundred thousand dollars) nothing gets reported on any tax return.

Now their are some exceptions. For example, if you have money in a 401(k) or traditional IRA account, the beneficiary recipients has several choices they can make concerning those tax deferred funds. One of the choices they can make is to "cash out" the account. If they do that, then if you would have been of retirement age on the day they cash it out, they have to pay taxes on that withdrawal. If you would *not* have been of retirement age on the day they cash it out, then in addition to taxes, they would also pay the 10% early withdrawal penalty. There's other things they can do with the money too, such as transfer it to your own tax deferred retirement account.

Sometimes, you may want to go ahead and pass something on to a beneficiary before you die. You can do this. But if what you pass on in any one tax year is valued at more than $14K, then you the giver (not the recipient) are required to file a gift tax return with the IRS. When you do this, no taxes are paid to the IRS or anybody for that matter. All you are doing is telling the IRS that you are transferring 'early', a part of your $5.2M limit to that beneficiary.recipient. what you transfer before you die, is subtracted from the $5.2M tax exempt inheritance. When you do this, no taxes are paid to anybody.

So in reality, the term "gift tax" does not exist, because there is no gift tax. But they call the form you fill out and submit to the IRS, a "gift tax return", when in my opinion it should be called an "early inheritance return".

One problem will passing things such as a house, to a beneficiary recipient before you die, is that they assume your cost basis. So if your mom purchased the house 25 years ago for $10,000 this can be a tax hell for you as the recipient, later down the road, as her original cost basis of $10,000 is now your cost basis also. So if your mom dies today and you sell the house for $200,000, you now have to pay taxes on a $190,000 gain.

Whereas if you do NOT receive the house until after your mom dies (presumably she wills it to you), then your cost basis will be the fair market value of the house on the day she passed away. So if that was today, your cost basis would be $200,000. Then if you sell the house for $200,000 you don't pay one single penny in taxes, because you have no taxable gain based on the inherited cost basis.