How to transfer property to a child
Deeding a house to your child takes one document and about ten minutes. Whether you should is a much harder question, because the tax consequences of giving it now versus leaving it at death are dramatically different, and almost always favor waiting.
Read this before you sign anything
If you gift the house now, your child takes your original cost basis. If they inherit it at your death, they get a stepped-up basis equal to its value that day. On a home bought for $60,000 now worth $500,000, that difference can be roughly $66,000 in capital gains tax when they sell.
The basis problem, with numbers
| Gifted during your life | Inherited at your death | |
|---|---|---|
| Child's basis | $60,000 (yours) | $500,000 (date-of-death value) |
| Gain on sale | $440,000 | $0 |
| Federal capital gains at 15% | ~$66,000 | $0 |
What usually works better
- [Transfer-on-death deed](/transfer-on-death-deed). Your child inherits at your death with a full step-up in basis, the property skips probate, and you keep complete control and can change your mind. Available in 32 states plus DC.
- [Lady bird deed](/lady-bird-deed). Same outcome in Florida, Texas, Michigan, Vermont and West Virginia, with the added benefit that homestead exemptions generally survive.
- A living trust. More expensive and more comprehensive, and the right answer when there is more than one property or a complicated family.
When gifting now is still right
- The property has appreciated little, so the basis difference is small.
- Your estate is large enough to owe estate tax and moving the asset out now is part of a plan your adviser designed.
- Your child is going to live in it and needs to be on title to get a mortgage or an exemption.
- You want the transfer to be permanent and irreversible for reasons of your own.
If you're gifting now, do it properly
- Use a gift deedIt recites the donative intent, which is what supports a transfer tax exemption in most states and documents that no money changed hands.
- File IRS Form 709A gift above the annual exclusion requires a gift tax return even though no tax is usually due. It draws down your lifetime exemption. Talk to a CPA.
- Consider the Medicaid look-backGifting property within five years of applying for long-term care Medicaid can create a penalty period of months or years. If care is a realistic prospect, see an elder law attorney first.
- Understand it is permanentOnce recorded, the property is theirs. Their divorce, their bankruptcy, and their creditors can all reach it. You can't take it back.
The interview asks about tax and Medicaid up front and tells you honestly when to talk to a professional first.
Common questions
In most cases, leaving it is better, because of the stepped-up basis. Gifting makes sense when the property has barely appreciated, when estate tax planning requires it, or when the child needs to be on title now for a specific reason. Run the numbers before you decide.
Almost certainly not. Gifts above the annual exclusion require Form 709, but they simply reduce your lifetime exemption rather than triggering tax, and that exemption is in the millions. The real cost is the lost basis step-up, not gift tax.
Only if you reserve the right. That is exactly what a life estate deed or a lady bird deed does. An outright gift with an informal understanding that you can stay is legally worthless, and puts your home in the middle of your child's divorce or bankruptcy.
Think hard about leaving one property to several children. They become co-owners, and if they disagree about selling, the resolution is a partition lawsuit. The court process you were trying to avoid. Naming one child and equalising with other assets is often cleaner.
Keep reading
Deedly is not a law firm
We provide self-help software and state-specific statutory forms; you make your own decisions about your property. Using Deedly does not create an attorney-client relationship, and nothing here is legal advice. If your situation is complex or contested, talk to a licensed attorney in your state.