[red130]

My father died but my mom is still alive she signed over her house to me and my brother we are selling it do we have to pay inheritance or estate tax

[ScottGem]

First, if mom "signed" the house over to you, then she presented you with a gift.Assuming you paid nothing for the property. She may have to pay gift taxes on that gift. Second, since this was a gift, not an inheritance, then you will have to determine your cost basis, which may be nothing since you paid nothing. Which would mean you would have to pay capital gains tax on the whole sales price.

So basically this signing over was a bad idea. You really need to consult with a tax professional to determine what your tax liability will be from the sale of the house and what your mother will owe for gift taxes.

[wnhough]

No.The estate tax is a tax imposed on the transfer of the "taxable estate" of a deceased person. Your mother gifts you and your brother.Suppose the amount of the gift is $1,026,000 or less for 2010 , and your mother didn't make any taxable gift before, then no gift tax is imposed on her(as you can see,in the US, a donor generally pays the gift tax; If your mother "gifts" more than the gift amount above, then she'llhave to file the IRS form 709.)
Donees, you and your brother, however, are responsible for your capital gain taxes as you sell the house( probably subject to LongTerm Capital Gain Taxes; If your parents've lived in the home for two of the past five years as a primary residence, they may sell and keep up to $250,000 in profits(LTCG) tax free, or up to $500,000). For 2010, the LTCG tax rate is 0%, not 5% if your personal tax backet is 15% or lower than 15% and 15% if your bracket is higher than 15%.
After 2010, the long-term capital gains tax rate will be 20% (10% for taxpayers in the 15%(or lower) tax bracket).
So,(to reduce your capital gain taxes) It would have been much better had your mother disposed of the house and qualified for the $500,000 capital gain exclusion benefit allowed for the sale of a primary home, then given you and your brother the remaining proceeds.

[AtlantaTaxExpert]

I agree that there were better alternatives than your mother gifting the house to you and your brother. However. If that is the only real asset she owns, it probably will not make a great deal of difference tax-wise.

A number of points to consider:

1) When a capital asset (such as a house) is inherited from an estate, the basis on that capital asset is "stepped up" to the Fair Market Value of the asset at the time of the decedent's death. However, when it is gifted, the basis is the basis that the giver originally had. So, in your case, the basis for the home is what you your parents paid for when they originally purchased it, plus the cost of whatever capital improvements were made between the purchase date and the date of the gift. As a result, there MAY be some capital gains tax due when the house is sold by you and your brother. The capital gains will have to be reported equally (50% for you and 50% for your brother on you and your brother's return, using Schedule D.

2) There IS a $13,000 annual gift tax exemption that will reduce the gift amount by $26,000 ($13K for you and $13K for your brother). Then, the estate exemption of $1,026,000 is applied. Assuming the house is worth MORE than $26,000, but less than $1,026,000, no gift tax will be due, but a gift tax return (Form 709) WILL have to be filed to properly the gift of the house. Note that a gift tax return is NOT a return for amateurs, so make sre your mother gets professional tax help to file such a return.

3) The inheritance tax is a STATE tax that involves taxing the assets received from an estate. Since there is no extate, there is no inheritance, hence no inheritance tax.