You say you’re thinking of transferring ownership of your home to a family member while you’re still living? That can be an admirable thing to do – provided you take all the tax considerations into account.
A poorly planned transfer of ownership can be costly, leaving your loved one with a potentially crippling tax burden. That’s the basic takeaway from this column from Elder Law Answers, first published a few months back.
Advice from a Qualified Professional is a Must
The column presents a response to the question, “How do I transfer property to a family member tax-free?” The website makes it clear that Elder Law Answers is designed to dispense general advice, not a professional legal opinion, so it’s important to bear that in mind as you read what the article suggests.
As always, qualified legal and financial advice specific to your situation is essential before making any significant decision such as this. That said, the article makes it clear that there are ways to accomplish the transfer of real property with little or no tax implications, and it touches on four possible courses of action. Let’s take a look.
Transferring a Home Can Be Meaningful – if Done Properly
The column in Elder Law Answers explains that there are several reasons why a parent may want to gift a house to their adult child. “One of the main reasons,” says the article, “is to provide financial support and security for their child’s future. By transferring ownership of a property, parents can help their child avoid the burden of a mortgage or rent payments, allowing them to save money and build equity in a home.”
This is especially true today when home-buying is increasingly out of reach for many. The article goes on to note that gifting a house allows parents to pass on their wealth and assets to the next generation. This, in turn, provides that adult child with a strong and stable foundation for their own financial future.
Family Ties Can Be Strengthened as Home Ownership Is Transferred
Another reason why some families want to retain home ownership by passing it to the next generation reflects a desire to strengthen family ties. There is a unique symbolism in the family home, and by transferring title early, family unity and support can grow deeper.
“Overall, gifting a house to a child can be a generous and meaningful way for parents to provide for their loved ones and secure their legacy for generations to come,” says the Elder Law Answers analysis. However, the article warns, the devil is in the details.
“Giving your house to a loved one, such as your child, can have potential tax implications,” it goes on. “However, there are several ways to accomplish it tax-free. The best method to use will depend on your individual circumstances and needs.” Here are four potential options which the article suggests.
Option #1: Leave the House in Your Will
If the goal is simply to transfer ownership, the article implies, the simplest way to give your house to your children is to leave it to them in your will. “As long as the total amount of your estate is under $15 million (per individual, as of 2026), your estate will not pay federal estate taxes,” says the article. State taxes will vary depending on where your family lives and where the property is located.
The other big reason to use your will to gift the house involves capital gains taxes. “[W]hen your children inherit real estate property,” says Elder Law Answers, “it reduces the amount of capital gains taxes they will have to pay if they sell the property. Capital gains taxes are paid on the difference between the property’s basis and its selling price. If children inherit property, the tax basis is stepped up, which means the basis would be the value of the property at the time of death, not the original cost of the property.”
The article notes two main downsides to this plan. First, as noted above, leaving the property in your estate may cause your estate to owe state taxes. Second, Medicaid might put a lien on the property if you received Medicaid long-term care benefits before your death. In extreme cases, your heirs could find themselves needing to sell the property to repay Medicaid.
Option #2: Gift the House to Your Family Member
A second option, says Elder Law Answers, sounds even simpler: give the house to your adult child outright. The article explains that making this type of gift may not have direct tax consequences for you, but it could have a major tax impact for your family.
Under IRS rules, when you give anyone more than $19,000 in a year ($38,000 per couple), you must file a gift tax form. But thanks to the lifetime federal gift and estate tax exclusion (about $15 million per individual as of 2026), “you can make gifts up to that total over your lifetime without owing federal gift tax.” You’ll have to file a gift tax form, says the article, but you probably will not owe federal gift tax.
Giving Your Home to a Family Member Can Impact Their Taxes
Is there a downside to gifting property outright? The answer is yes, and the biggest one, says Elder Law Answers, is the capital gains tax consequences for your children. “If your children are planning to sell the home, they will likely face steep capital gains taxes,” the article explains.
“When transferring real estate as a gift, it does not receive a step-up in basis, as it does when it has been inherited. When you give away your property, the tax basis (or the original cost) of the property for the giver becomes the tax basis for the recipient.” Translation: the sale of a home that has been gifted will typically bring a much larger tax bite than the sale of an inherited home.
You need to plan accordingly. Another important consideration involves Medicaid long-term care benefits. If you apply for Medicaid within five years of the gift, gifting your home will likely have major consequences. (We wrote about Medicaid’s five-year look-back last week here on the Blog.)
Option #3: Sell Your Home to Your Loved Ones
If an outright gift isn’t in your plan, a family sale might be an option worth considering. “You may consider the option of selling your house to your children,” says the article in Elder Law Answers.
“If you sell the house for less than fair market value, the difference in price between the full market value and the sale price will be considered a gift.” As with any gift, you can apply the $19,000 annual gift tax exclusion as well as the $15 million lifetime gift tax exemption on this gift.
“Another option is to sell the house at full market value but hold a note on the property,” the article suggests. But documentation is important. “The note should be in writing and include interest,” says the article. “You can then use the annual $19,000 gift tax exclusion to gift your child $19,000 each year to help make the payments on the note. This can be tricky, and you should consult with your attorney to make sure this won’t cause any tax problems.”
As noted above, Medicaid qualification can also affect your plans. If you sell anything of value for a substantially discounted price, it can trigger alarm bells during the five-year look-back review. Talk to a Medicaid-qualified attorney and financial planner before going ahead with the sale.
Option #4: Put the House in a Trust
“Another method of transferring property is to put it into a trust,” says Elder Law Answers. “If you put it in an irrevocable trust that names your children as beneficiaries, it will no longer be a part of your estate when you die, so your estate will not pay any estate taxes on the transfer.”
An important related note: The house placed in the right type of trust will also not be subject to Medicaid estate recovery. But be cautious, because this step can’t easily be undone.
“The downside is that once the house is in the irrevocable trust, it can’t be taken out again,” the article cautions. “Although the house can be sold, the proceeds must remain in the trust. Similar to making a gift, if you apply for Medicaid within five years of transferring the house, you may be subject to a Medicaid penalty period.”
Rajiv Nagaich – Your Retirement Planning Coach and Guide
Rajiv Nagaich’s newest program on PBS, called Designing Your Ideal Future, is bringing Rajiv’s powerful message to Americans from coast to coast. This engaging and challenging PBS show is prompting thousands to take a fresh look at the type of planning that will help them succeed in retirement.
In this one-hour PBS special, Rajiv Nagaich takes viewers step by step through the principles of creating a retirement plan that truly supports the life you want to live. Instead of generic check-the-box paperwork, Rajiv reveals how to infuse your perspective — your values, goals, and priorities — into every legal document and life plan component so your plan becomes a living system for your future.
Designing Your Ideal Future includes insights from real-world planning examples and a live Q&A with Rajiv Nagaich that answers viewer questions about retirement planning, legal readiness, and family communication. It’s perfect for anyone approaching retirement, currently retired, or responsible for a loved one’s future care — and for those who want a clear, effective approach to planning that prioritizes personal choice and quality of life.
What about you? You’ve heard Rajiv say it repeatedly: 70 percent of retirement plans will fail. If you know someone whose retirement turned into a nightmare when they were forced into a nursing home, went broke paying for care, or became a burden to their families – and you want to make sure it doesn’t happen to you – then these materials are your key to retirement success.
Visit your local PBS station’s schedule to find airtimes and learn how to access companion resources — including a free Legal Readiness Quiz and tools to help build your complete LifePlanning system. Don’t remain among the millions of Americans sleepwalking their way into a retirement they never wanted. Instead, your retirement can be the exciting and fulfilling life you’ve always hoped it would be. Start by watching, reading and sharing Rajiv’s important message.
And remember, Age On, everyone!
The post Transferring Property to a Family Member the Right Way Takes Careful Planning appeared first on Home.
