Regardless of which of those options you choose, no one would owe any taxes on this transaction.
Under current law, each taxpayer may give up to $1 million in gifts during their lifetime before they actually owe any gift tax. There is an additional $13,000 annual exclusion which does not even apply or reduce the $1 million lifetime limit. Gifts which exceed the $13,000 annual exclusion must be reported by the giver of the gift by filing Form 709 with the IRS which is a gift tax return. However, no gift tax is actually due until that taxpayer has used up his allowed $1 million lifetime exemption.
So if you simply paid off this home and then gave it to your daughter, you would be giving her a gift which is worth $145,000. You would report giving that gift by filing Form 709 and you would split the gift between you and your husband, showing that you each gave your daughter $72,500 in gifts. That would then simply reduce the remaining limit on lifetime gifts for each of you down from the $1 million to $927,500 of gifts you could give in your lifetime before any gift tax would be due.
If this was helpful please press the Accept button. Positive feedback is also appreciated.
Thank you Patty