You could not actually add your sister's name to the mortgage as she would need to be approved by the lender, and this would involve applying for a new mortgage.
You may, however, just add her name to the deed as a joint owner by signing a quit claim deed. A quit claim deed form can be purchased at any major office supply store such as Office Depot. There are also some on line websites that have this form. You would simply need to fill out that form adding her name to the title, and then file the quit claim deed with the county where your home is located.
Keep in mind that in the eyes of the IRS, you would be giving your sister a gift equal to one half of the market value of the home, and because of that you would need to file a gift tax return, although it it highly unlikely you would actually owe gift taxes.
First, if and when gift tax is ever due, it is paid by the donor and not by the recipient of the gift. However, under current regulations, each taxpayer is allowed to give gifts in their lifetime of up to $1 million before any gift tax becomes due.
In addition to the $1 million lifetime exemption, each individual is allowed to give annual gifts of up to $13,000 to any number of individuals, and those gifts do not even apply towards the lifetime exemption, nor do they need to be reported. Gifts which exceed the annual exclusion of $13,000 must be reported by the donor by filing Form 709 with the IRS to report the value of the gift. However, no tax is actually due unless that donor has already reached his $1 million lifetime limit. The amount reported then reduces that donor's remaining lifetime balance that he may give in non-taxable gifts.
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Thank you Doris
Edited by Merlo on 9/2/2010 at 1:27 PM EST