What Are the Costs and Taxes to Transfer a House to My Child?

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Jean Folger
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Jean Folger has 15+ years of experience as a financial writer covering real estate, investing, active trading, the economy, and retirement planning. She is the co-founder of PowerZone Trading, a company that has provided programming, consulting, and strategy development services to active traders and investors since 2004.
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Updated November 17, 2023
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Lea D. Uradu
Lea Uradu
Reviewed by Lea D. Uradu
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Lea Uradu, J.D. is a Maryland State Registered Tax Preparer, State Certified Notary Public, Certified VITA Tax Preparer, IRS Annual Filing Season Program Participant, and Tax Writer.

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If you're thinking about transferring your home to your child, you may want to do your research. That's because there are some administrative and financial considerations you may want to weigh out before you make the move.

The costs associated with a title transfer vary by state and by how the transfer is accomplished. Filing a deed yourself may be the cheapest method, but it requires quite a bit of homework to ensure you fill out and file the appropriate paperwork correctly.

Online legal document centers, such as LegalZoom, offer deed transfer services for around $250, plus filing fees. These services typically include title research, creation of the real estate deed, and filing of the deed with the county recorder's office. You can also hire a real estate attorney to execute the deed transfer. This might be the most expensive option, but it may also be the least stressful since you will be certain the transfer was executed appropriately.

Key Takeaways

  • The costs of transferring a real estate property vary by state and by how the transfer is done.
  • Filing a deed yourself might be inexpensive but requires being informed.
  • Hiring an attorney might be expensive, but also less stressful.
  • Transferring property could cost more than leaving it as an inheritance.

Costs of Tax Consequences

Tax consequences of selling a property to a child can end up costing them more money than if they were to inherit the property later.

Let's assume you originally purchased your home for $50,000 and put $20,000 into the home over the years. It has a current market value of $250,000. Because you transferred the home to your child while you were still living, your cost basis of $70,000 becomes your child's basis.

If your child sells the home, they would owe capital gains taxes on the difference between the sale price and the cost basis, which would be $180,000. At a capital gains rate of 15%, that would equal $27,000 in taxes. The tax rate would be higher if you owned the home for less than one year, at which point the profit would be taxed as ordinary income.

If your child moves in and lives in the property for at least two out of five years before selling it, up to $250,000 of profit can be excluded, and $500,000 can be excluded if filing jointly with a spouse. Your child will have to use your cost basis of $70,000, which includes the $50,000 purchase price, plus the $20,000 in improvement costs.

When a parent transfers the title of the home to a child without receiving valid consideration, this is considered a gift. Gifts in excess of the annual exclusion rate must be reported to the IRS, and the donor will be subject to gift taxes.

Transferring Title vs. Inheriting

If your child inherits the property upon your death instead of you transferring the deed to them, the child will receive the stepped-up basis, where the value of the property on the date of your death becomes the child's basis. So, if the property has a market value of $250,000 at the time of your death, your child could sell the home for $250,000 and not be responsible for capital gains tax.

Suggestions were floated to modify the stepped-up basis rule in the future. This includes changes that were proposed by the Biden Administration that would eliminate the stepped-up basis altogether. Since tax rules do change, it is important to consult with a qualified tax specialist before making any decisions.

How Can I Pass My Home to My Children Tax-Free?

There are four ways this can be done:

  1. Leave Your Home in Your Will: If the total amount of the property doesn't exceed $12.92 million in 2023 or $13.61 million in 2024, your children won't have to pay estate taxes.
  2. Gift Your Home: You can apply the $17,000 annual gift tax exclusion in 2023 (increasing to $18,000 in 2024) to avoid paying any taxes. Also, you can gift up to $12.92 million in 2023 or $13.61 million in 2024 over your lifetime without incurring a gift tax (this is called the lifetime gift tax exclusion). So, if your home is worth less than that amount and you give it to your children, it won't be subject to any gift taxes.
  3. Sell Your Home to Your Children: 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. Then, you can use the gift tax exclusions as discussed above.
  4. Put the Property in a Trust: By putting the property in a trust that names your children as beneficiaries, it will no longer be a part of your estate when you die, so it won't be subject to taxes.

Do My Kids Pay Taxes Automatically If They Inherit Property?

No, they don't automatically have to pay taxes on the property they inherit. If they sell the property, they will owe capital gains taxes only on any gains that the property made since it was inherited.

What Is the Generation- Skipping Transfer Tax?

The generation-skipping transfer (GST) tax is an additional tax on a transfer of title to a property that skips a generation. It was implemented so families could avoid the estate tax for one or more generations by making their gifts to their grandchildren or great-grandchildren rather than to their children. The transfer can be up to $12.92 million in 2023 or $13.61 million in 2024 to avoid any taxes.

The Bottom Line

If you are considering transferring your home to your children, you have to be aware that there are costs and taxes associated. They vary that state and by how the transfer is done, and ultimately, the transfer could end up costing your children more money than if they were to inherit the home.

It's always good advice to hire an attorney to walk you through the process and find the best alternatives to give a house to your children tax-free.

Article Sources
Investopedia requires writers to use primary sources to support their work. These include white papers, government data, original reporting, and interviews with industry experts. We also reference original research from other reputable publishers where appropriate. You can learn more about the standards we follow in producing accurate, unbiased content in our editorial policy.

  1. LegalZoom. "Property Deed Pricing."

  2. U.S. House of Representatives, Office of the Law Revision Counsel. "26 USC 1015: Basis of Property Acquired by Gifts and Transfers in Trust."

  3. Internal Revenue Service. "Topic No. 409, Capital Gains and Losses."

  4. Internal Revenue Service. "Topic No. 701, Sale of Your Home."

  5. Internal Revenue Service. "Frequently Asked Questions on Gift Taxes."

  6. U.S. House of Representatives, Office of the Law Revision Counsel. "26 USC 1014: Basis of Property Acquired From a Decedent."

  7. Congressional Budget Office. "Options for Reducing the Deficit: 2019 to 2028," Page 229.

  8. The White House. "President’s Budget Rewards Work, Not Wealth with new Billionaire Minimum Income Tax."

  9. ElderLawAnswers. "Four Ways to Pass Your Home to Your Children Tax-Free."

  10. Internal Revenue Service. "IRS Provides Tax Inflation Adjustments for Tax Year 2024."

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