3 years ago, I bought a house for my daughter to live in until she could manage to get her own mortgage. The mortgage now is in my name only. I put my name and her name on the deed when I bought it because I wanted to be sure it was her house if something happened to me. (warranty deed, tenants in common) She has made all of the payments on the mortgage. She has paid all the taxes, house insurance and even has life insurance on herself to cover the cost of the house. I have never claimed any sort of deductions on my taxes for the house or mortgage, neither has she.
Now she has improved her credit score to be able to get her own mortgage. My question is: How do I handle this and not have to pay taxes as if I sold her the house or my half of the house? Does she just go get her own mortgage? Do we keep my name on the deed? (i'd rather not be on it anymore, but if it keeps me from having to pay tax on about $100,000, that will be ok) My biggest worry is that IRS will look at it as a sale of a second home on which I will have to pay tax.
We were told by the mortgage company when I bought it that she could do a refinance. We never thought to ask, how can she refinance a house on a mortgage that is not in her name? I don't know why that didnt occur to us at the time. Guess I should have asked a real estate lawyer 3 years ago. Thank you for your assistance.