Taxes when adding a sibling to Deed

[2023Taxes]

My mother left a house to my sister in her trust.  While living my mother deeded the deed out of the trust into my sister's name.  Is there tax ramifications to that if my mother has not passed away yet?  Second, my sister now wants to add my name to the deed.  If we were to add my name, would we then have to pay taxes on that part?  Is it better to leave my sister's name on it by itself and then when the house is sold, less money would be taken for taxes? Not even sure I am asking the correct question or wording this right, but thank you for any help.

[dmertz · Accepted solution]

Your mother deeding the house to your sister would generally be a gift from your mother to your sister that would require you mother to file a gift-tax return, Form 709.  Similarly, if your sister now adds your name to the deed, that would be a gift of 50% of the house from your sister to you that would require your sister to file a gift-tax return.  In either case it's unlikely that any taxes would be owed, but filing Form 709 would be necessary to show that.

With regard to selling the house, your mother's cost basis in the house transferred to your sister with the gifting of the house to your sister and if your sister gifts 50% to you then each of you would have 50% of your mothers basis in your respective 50% shares of the house.  Either of you to getting an exclusion for any of the taxable gain upon the sale of the house would require meeting the eligibility requirements:  https://www.irs.gov/pub/irs-pdf/p523.pdf

[NCperson]

@2023Taxes - while there may be more to your story, it is much cleaner for your mom to maintain ownership of the home herself and then leave the house to you and your sister in her will.  That way the home 'steps up' at death and there is little chance of any tax to be paid upon sale of the home.