To gift real estate, you prepare a deed transferring ownership to the recipient, sign it before a notary, and record it with the county where the property sits. The legal mechanics are the easy part. The harder question is whether you should gift it at all, because the recipient inherits your original cost basis and may owe substantial capital gains tax when they sell, a bill that often disappears entirely if they inherit the property instead.
The Capital Gains Problem Most Givers Miss
Before touching a deed, understand what happens to the recipient’s tax bill down the road. When you give real estate as a gift, the recipient takes over your original cost basis in the property.1Office of the Law Revision Counsel. 26 US Code 1015 – Basis of Property Acquired by Gifts and Transfers in Trust Tax professionals call this carryover basis.
Say you bought a home for $100,000 thirty years ago and it’s now worth $500,000. Gift it to your child and their cost basis is $100,000. When they sell for $500,000, they owe capital gains tax on the $400,000 difference. Depending on their income bracket and state, that bill can easily reach $60,000 or more.
Inheritance works differently. Property received from a decedent gets a stepped-up basis equal to fair market value on the date of death.2Office of the Law Revision Counsel. 26 USC 1014 – Basis of Property Acquired From a Decedent If the home is worth $500,000 when you die, your child’s basis becomes $500,000. They could sell the next month and owe nothing in capital gains.
For families whose estates fall well under the federal exemption, holding the property until death is often the smarter tax move. Gifting makes more sense when the property hasn’t appreciated much, when you expect rapid appreciation you want to shift out of your estate, or when the recipient plans to keep the property long-term rather than sell.
Federal Gift Tax Rules for 2026
The IRS treats any transfer of property for less than fair market value as a gift. For 2026, the annual gift tax exclusion is $19,000 per recipient.3Internal Revenue Service. Gifts and Inheritances Since almost any real estate exceeds that figure, nearly every property gift will require you to file IRS Form 709.
Filing Form 709 does not mean you owe tax. The return simply reports the gift and deducts the amount above the annual exclusion from your lifetime exemption, which sits at $15 million per individual for 2026 following the increase enacted under Public Law 119-21.4Internal Revenue Service. Whats New – Estate and Gift Tax A married couple can shield up to $30 million combined. Unless you’ve already used a significant portion of your exemption or plan to leave a very large estate, you won’t owe federal gift tax.
The obligation to file falls on the giver, not the recipient. Form 709 is due by April 15 of the year after the gift.5Internal Revenue Service. Instructions for Form 709 (2025) Federal law requires a return for any gift exceeding the annual exclusion that doesn’t qualify for the marital or charitable deduction.6Office of the Law Revision Counsel. 26 USC 6019 – Gift Tax Returns
Gift Splitting for Married Couples
If you’re married, you and your spouse can elect to split a gift so it’s treated as though each of you gave half, effectively doubling the annual exclusion to $38,000 per recipient.7Office of the Law Revision Counsel. 26 USC 2513 – Gift by Husband or Wife to Third Party Both spouses must consent on Form 709 and both must file a return for that year, even if only one spouse owned the property. Splitting also makes both spouses jointly and severally liable for any gift tax on the return.
Getting an Appraisal
You need a fair market value to complete Form 709. The IRS defines fair market value as the price a willing buyer and willing seller would agree upon, neither under pressure to close.8Internal Revenue Service. Frequently Asked Questions on Gift Taxes For real estate, that usually means hiring a licensed appraiser. The IRS recommends attaching the appraisal to your gift tax return, and professional documentation protects you if the valuation is later questioned.
If the Property Has a Mortgage
A mortgaged property complicates the gift in two ways.
Due-on-Sale Clauses
Most mortgages let the lender demand full repayment when ownership changes hands. Federal law limits enforcement on residential properties with fewer than five units: lenders cannot trigger the due-on-sale clause when a borrower’s spouse or children become owners, and transfers into a living trust where the borrower remains a beneficiary are also protected.9Office of the Law Revision Counsel. 12 US Code 1701j-3 – Preemption of Due-on-Sale Prohibitions
Gifts to a sibling, parent, niece, or unrelated person don’t fall under these exceptions. The lender can legally demand the entire balance. Before transferring mortgaged property to anyone outside spouse or child, contact the lender or have the recipient refinance in their own name.
Part-Gift, Part-Sale Treatment
When a recipient takes on your mortgage, the IRS treats the assumed debt as consideration you received. If the remaining balance exceeds your adjusted cost basis, you may owe capital gains tax on the difference even though no cash changed hands. Example: your basis is $80,000, the recipient assumes a $120,000 mortgage, and the IRS treats you as having received $120,000, creating a $40,000 taxable gain. Only the equity above the mortgage is the gift portion. Work these numbers through with a tax professional before transferring.
Preparing the Deed
The deed is the legal document that transfers ownership from you (grantor) to the recipient (grantee). Two types are commonly used for gifts.
A warranty deed guarantees that you hold clear title and have the legal right to transfer it; if a defect surfaces later, the recipient has legal recourse against you. A quitclaim deed transfers whatever interest you have without guarantees, so if a lien or competing claim exists, the recipient bears the loss. Quitclaim deeds work between family members who trust each other and are confident the title is clean.
Whichever type you use, the deed must include the full legal names of all grantors and grantees, a complete legal description of the property (from the current deed or a survey, not just the street address), and a statement of consideration. For a gift, consideration is typically listed as “love and affection” or “ten dollars and other good and valuable consideration” to reflect that no real price was paid. Blank forms are available from county recorder offices and legal forms providers, though an attorney’s review is worth the cost given what’s at stake.
One point people overlook: your existing title insurance does not transfer with the property. Coverage protects only the named insured and generally ends at the ownership change. If the recipient wants protection against title defects, they need to purchase a new owner’s policy.
Notarizing and Recording
The giver must sign the deed in front of a notary public, who verifies identity and authenticates the signature. Some states also require witnesses. Once notarized, the deed goes to the county recorder, county clerk, or register of deeds in the county where the property sits.
Recording creates a public record of the ownership change and protects the recipient against future third-party claims. An unrecorded deed may be valid between giver and recipient, but it won’t protect the recipient if the giver later sells or mortgages the property to someone who has no knowledge of the gift. Recording fees vary widely: some counties charge $25 to $30 for a simple deed, others over $150 once surcharges are included. Call the recorder’s office for the exact fee before submitting.
Many counties also require a transfer tax declaration or real property transfer form to accompany the deed, even when no money changes hands. Some states exempt gift transfers from transfer taxes; others impose the tax based on assessed or fair market value regardless of whether money was exchanged. Check with your county recorder or state department of revenue before filing. The recorded original is typically returned to the new owner within a few weeks.
After the Transfer
Once the deed is recorded, the recipient is the legal owner and property tax bills become their responsibility. Contact the county assessor’s office to update the mailing address for tax notices. In many jurisdictions, a change in ownership triggers a reassessment of taxable value, which can substantially increase the annual bill, especially if the property had been assessed at a low historical value.
The recipient should purchase homeowner’s insurance in their own name immediately. The giver’s existing policy does not automatically cover a new owner, and any gap leaves the property unprotected.
Keep a copy of the recorded deed, the appraisal, and the filed Form 709 indefinitely. The recipient needs these records to establish their cost basis when they eventually sell.
Medicaid Look-Back Risk for Older Givers
If the giver may need Medicaid-funded long-term care within the next several years, gifting real estate can create a serious eligibility problem. Federal law imposes a 60-month look-back: when you apply for Medicaid long-term care benefits, the state reviews all asset transfers made during the five years before your application.10Office of the Law Revision Counsel. 42 USC 1396p – Liens, Adjustments and Recoveries, and Transfers of Assets
Any transfer made for less than fair market value in that window, including gifts, triggers a penalty period of Medicaid ineligibility. The length is calculated by dividing the value of the transferred asset by the average monthly cost of nursing home care in your state. For a $300,000 property in a state where nursing care averages $10,000 per month, the penalty runs 30 months. There is no cap on how long the penalty can last.
Timing matters enormously. Anyone over 60 or in declining health should consult an elder law attorney before gifting real estate to avoid inadvertently disqualifying themselves from benefits they may need.