I'm trying to understand the gift tax requirements on transferring a property.
Here's a hypothetical situation for an example:
A mother and daughter buy a house together and are both named on the deed and mortgage. The daughter pays the small deposit and the mother makes all the mortgage payments.
The daughter still lives at home with the mother so this new house isn't a primary residence. They rent it out and the mother receives and claims all income on her taxes while continuing to pay the mortgage. A second mortgage is taken out for improvements.
After a few years the daughter decides she doesn't want to be an owner anymore and the mother and daughter sign some kind of deed transferring the daughter's share of the house to the mother. They have it notarised and properly recorded.
To work out if she owes any gift tax, the daughter takes the value of the house, deducts what is outstanding on the mortgage and then splits that number, the equity, in half to see her share. E.g. $90,000 value -$70,000 remaining mortgage = $20,000 equity, so she is gifting her $10,000 share.
Is that correct? Would the mortgage being in both names change or affect this? Does the fact that the mother receives all income and pays the mortgage change or affect it?
