Gifting real estate to a family member takes only a signed, notarized, and recorded deed, but the tax consequences reach well beyond that piece of paper. The giver almost always has to file a federal gift tax return, the recipient takes over the giver’s original cost basis and can face a large capital gains bill when they sell, and a gift made within five years of applying for Medicaid can delay long-term care coverage. Federal gift tax itself rarely comes into play: for 2026, the lifetime gift and estate tax exemption is $15 million per individual.1Internal Revenue Service. What’s New – Estate and Gift Tax
How the Transfer Actually Happens
The legal mechanics are short. The current owner (the grantor) signs a deed transferring the property to the family member (the grantee). Family gifts most often use a quitclaim deed, which passes whatever interest the grantor holds without guaranteeing clean title. A warranty deed offers more protection to the recipient but is less common between relatives.
The deed needs both parties’ full legal names, the property’s legal description from the most recent recorded deed, and a statement of consideration. In a gift, that consideration is often written as “love and affection” or a nominal amount like $10. Pull the current title records before drafting to confirm the legal description and check for liens or easements.
The grantor’s signature must be notarized in virtually every jurisdiction, and some states also require witnesses. After notarization, the deed goes to the local land records office, often called the County Recorder, Register of Deeds, or Clerk of Court. Recording fees usually run from about $10 to over $100 as a base charge, plus per-page costs. Once it’s recorded, tell the county tax assessor so future bills go to the new owner, and notify the mortgage lender if there is one.
Mortgaged Property and the Due-on-Sale Clause
If the property still has a mortgage, transferring ownership can technically trigger the loan’s due-on-sale clause, letting the lender demand the full remaining balance. Federal law limits that power for family transfers. Under the Garn-St Germain Act, a lender cannot enforce a due-on-sale clause on a residential property with fewer than five units when the transfer adds a spouse or child to title.2Office of the Law Revision Counsel. 12 U.S. Code 1701j-3 – Preemption of Due-on-Sale Prohibitions The same protection covers transfers on the borrower’s death, transfers tied to divorce or legal separation, and transfers into a living trust where the borrower remains the beneficiary.3eCFR. 12 CFR Part 191 – Preemption of State Due-on-Sale Laws
Gifts to siblings, parents, nieces, or nephews aren’t on that protected list, so the lender could call the loan. And even for protected transfers, the mortgage doesn’t vanish. The original borrower stays liable unless the lender agrees to a formal assumption or the loan is refinanced in the new owner’s name.
Federal Gift Tax and Form 709
The IRS treats the property’s fair market value on the date of transfer as the amount of the gift. For 2026, each person can give up to $19,000 per recipient per year with no reporting.4Internal Revenue Service. IRS Releases Tax Inflation Adjustments for Tax Year 2026 Real estate almost always exceeds that, so the grantor has to file IRS Form 709 for the year of the gift.
Filing doesn’t mean owing. The amount above the annual exclusion is subtracted from your $15 million lifetime exemption; only cumulative lifetime gifts beyond that threshold trigger actual gift tax, which is imposed at 40%. The tax, when it applies, is always the donor’s obligation.5Office of the Law Revision Counsel. 26 U.S. Code 2502 – Rate of Tax The recipient reports nothing and files nothing.
Valuation matters. The IRS wants fair market value supported by evidence: a recent arm’s-length sale, comparable sales, or a qualified appraisal attached to Form 709.6Internal Revenue Service. Instructions for Form 709 For anything unusual, like rural land or a home without obvious comparables, a licensed appraisal for a few hundred dollars is the safer path.
The Carryover Basis Problem
This is the piece that catches families off guard. When you receive real estate as a gift, your cost basis for calculating capital gains is the giver’s original basis, not the value on the day you received it. Tax professionals call this carryover basis.7Office of the Law Revision Counsel. 26 U.S. Code 1015 – Basis of Property Acquired by Gifts and Transfers in Trust
An example makes it concrete. Say your parents bought their house in 1990 for $120,000 and gift it to you today when it’s worth $400,000. If you later sell for $450,000, your taxable gain isn’t the $50,000 of appreciation since you got the house. It’s $330,000, the sale price minus your parents’ original $120,000 basis. At long-term capital gains rates of 15% or 20%, depending on your income, that can produce a serious tax bill.
Why Inheriting Is Different
Inherited property gets a stepped-up basis: the recipient’s basis resets to the fair market value on the date of the original owner’s death.8Office of the Law Revision Counsel. 26 U.S. Code 1014 – Basis of Property Acquired From a Decedent Using the same house, if you inherited it at $400,000 and sold for $450,000, the taxable gain would be $50,000, not $330,000. For property that has appreciated a lot, keeping it in the estate rather than gifting it during the owner’s lifetime can save the family six figures in tax.
If the Recipient Moves In: Section 121
A recipient who makes the gifted house their primary residence can eventually use the Section 121 exclusion when they sell. That excludes up to $250,000 of gain, or $500,000 for a married couple filing jointly, as long as you’ve owned and used the home as your main residence for at least two of the five years before the sale.9Internal Revenue Service. Topic No. 701, Sale of Your Home
Applied to the earlier example, a single filer who lived in the home for two years could shield $250,000 of the $330,000 gain and pay capital gains tax on only $80,000. The exclusion doesn’t apply to rental or investment property, so it only helps recipients who actually move in.
Medicaid’s Five-Year Look-Back
Some families gift a home hoping to shield it from future nursing home costs. Medicaid has a direct answer to that strategy. When someone applies for Medicaid long-term care benefits, the state reviews all asset transfers made in the prior 60 months.10Office of the Law Revision Counsel. 42 U.S. Code 1396p – Liens, Adjustments and Recoveries, and Transfers of Assets Any transfer for less than fair market value triggers a penalty period of ineligibility.
The formula divides the value of the transferred asset by the average monthly nursing home cost in your state. Give away a $300,000 house in a state where nursing home care averages $10,000 a month, and you’re looking at 30 months of Medicaid ineligibility. The penalty period doesn’t begin when you make the gift. It begins when you apply for Medicaid and have otherwise spent down to the eligibility threshold, so someone who needs care years after the gift can qualify financially and still be locked out of coverage.
Property Tax Reassessment
Many jurisdictions reassess a property’s value for tax purposes when it changes hands. If the last assessment happened decades ago, the recipient’s tax bill can jump sharply. Some states exempt parent-to-child transfers from reassessment; others reassess every transfer regardless of relationship. Check with the local assessor before signing anything so the recipient knows what the annual bill will look like.
Insurance After the Transfer
Homeowner’s insurance follows the named insured, not the property. The existing policy generally doesn’t transfer with the deed, so the new owner needs their own coverage in place by the time ownership changes. A gap here can be catastrophic. If the recipient will use the home as a rental or second home rather than a primary residence, they’ll need a policy written for that use, which typically costs more than a standard homeowner’s policy.