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Did the title of the house transfer to your mother when she took over the mortgage payments or did your sister retain title? If your sister retained title, then she still owns the property and the mortgage payments that your mother is making are either classified as a gift or as a loan to be repaid. If the title transfered to your mother, then she can give the property to your sister without paying a capital gain tax. However, she may be subject to a gift tax.
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