Transferring a house to a child can be done four main ways: signing over a new deed as an outright gift, selling it to them (often below market value as a bargain sale), placing it in a revocable living trust, or filing a transfer on death deed that only takes effect when you die. For 2026, the federal lifetime gift and estate tax exemption is $15 million per person, so almost no family will owe gift tax on a home transfer.1Internal Revenue Service. What’s New – Estate and Gift Tax The expensive mistake is usually something else: giving the house away during your lifetime forfeits the stepped-up basis your child would get by inheriting it, which can cost tens of thousands of dollars in capital gains tax when they eventually sell.
The Four Ways to Move the Title
An outright gift is the simplest. You sign a new deed conveying the property to your child for no payment, record it, and you’re done. Ownership passes immediately and you lose all control. It’s fast and cheap, but as explained further down, the capital gains consequences can be severe.
A sale or bargain sale works like a normal real estate transaction, except the price is often set below fair market value. The IRS treats the gap as a gift. Sell a $400,000 house to your child for $200,000, and the other $200,000 is a gift you’ll need to report.2Internal Revenue Service. Publication 544 (2025), Sales and Other Dispositions of Assets You only recognize a taxable gain on the sale portion if the price exceeds your cost basis.
A revocable living trust lets you keep full control while alive. You serve as trustee, name your child as successor beneficiary, and can sell the property, change beneficiaries, or dissolve the trust at any time. When you die, the house passes to your child without probate, which can save months of court proceedings and legal fees. Setup requires paying an attorney to draft the trust and transferring the deed into the trust’s name.
A transfer on death deed, sometimes called a beneficiary deed, is available in more than 30 states. You sign and record it now, but it only takes effect at your death. Until then, you own the house outright and can revoke or change the beneficiary whenever you want. It avoids probate like a trust but costs far less because you only need the deed itself. If your state doesn’t authorize TOD deeds, this option isn’t available. A handful of states offer a similar tool called a Lady Bird deed or enhanced life estate deed.
Gift Tax: Almost Always Paperwork, Not a Bill
For 2026, you can give any one person up to $19,000 in a year without filing a gift tax return. Married parents giving jointly can double that to $38,000.1Internal Revenue Service. What’s New – Estate and Gift Tax Since a house is worth far more than that, you’ll almost certainly need to file IRS Form 709.
Filing does not mean you owe money. The value above the annual exclusion just reduces your $15 million lifetime gift and estate tax exemption. The One, Big, Beautiful Bill, signed into law on July 4, 2025, made this increased exemption permanent and indexed it for inflation.1Internal Revenue Service. What’s New – Estate and Gift Tax A married couple using portability has a combined exemption of $30 million. For nearly all families, gift tax on a home transfer is a filing obligation, not a check to the Treasury.
Form 709 is due April 15 of the year after the gift. Filing an extension for your income tax return automatically extends the gift tax return deadline too, or you can file Form 8892 for a separate six-month extension.3Internal Revenue Service. Instructions for Form 709 (2025)
The Real Cost: Lost Stepped-Up Basis
Here is where most families lose money without realizing it. When you gift a house, your child takes over your original cost basis: whatever you paid, plus any capital improvements over the years.4Office of the Law Revision Counsel. 26 U.S. Code 1015 – Basis of Property Acquired by Gifts and Transfers in Trust Buy the house for $120,000 thirty years ago, gift it now while it’s worth $500,000, and when your child sells they owe capital gains tax on the difference between the sale price and $120,000.
If your child inherits the house instead, the basis resets to fair market value on your date of death.5Office of the Law Revision Counsel. 26 U.S. Code 1014 – Basis of Property Acquired from a Decedent Same house, same numbers: the child’s basis becomes $500,000, and a sale shortly after triggers little or no capital gains tax. This “stepped-up basis” is one of the largest tax benefits in the code, and a lifetime gift forfeits it completely.
For 2026, long-term capital gains rates are 0% for single filers with taxable income up to $49,450 ($98,900 for married filing jointly), 15% up to $545,500 ($613,700 married filing jointly), and 20% above that.6Internal Revenue Service. IRS Releases Tax Inflation Adjustments for Tax Year 2026, Including Amendments from the One, Big, Beautiful Bill On a $380,000 gain, a child in the 15% bracket would owe $57,000 in federal tax. The same sale after inheriting might owe nothing.
One partial escape hatch: the Section 121 exclusion shelters up to $250,000 of gain ($500,000 for a married couple) on a principal residence, but only if the seller owned and used the property as their main home for at least two of the last five years.7Office of the Law Revision Counsel. 26 USC 121 – Exclusion of Gain from Sale of Principal Residence A child who receives the house but lives elsewhere or plans to rent it out won’t qualify. They’d need to move in for two years before selling.
If You Plan to Keep Living There
A common plan sounds sensible: put the deed in the child’s name but keep living in the house. The IRS knows this arrangement well. Under the retained life estate rule, if you transfer property but continue to possess or enjoy it, the full value of the house gets pulled back into your taxable estate at death.8Office of the Law Revision Counsel. 26 USC 2036 – Transfers with Retained Life Estate You end up with the worst combination: your child already inherited your low carryover basis, and the house still counts in your estate.
The only clean way around it is for the parent to pay fair market rent to the child after the transfer. The rent has to be real: the child reports the income, the parent writes checks at a rate a stranger would pay, and the arrangement looks like an arm’s-length lease. Informal promises won’t survive IRS scrutiny. If staying in the home matters, a transfer at death through a trust, TOD deed, or will is almost always the better path.
What Happens to the Mortgage
Most mortgages have a due-on-sale clause that lets the lender demand full repayment when the property changes hands. Federal law protects family transfers: a lender cannot accelerate the loan when the borrower’s spouse or children become owners of a residential property with fewer than five units.9Office of the Law Revision Counsel. 12 U.S. Code 1701j-3 – Preemption of Due-on-Sale Prohibitions So transferring the deed won’t force a payoff.
Transferring ownership does not transfer the debt, though. You stay personally liable on the mortgage unless the lender releases you or your child refinances in their own name. Notify the lender about the transfer so their records match the deed. If your child later wants to refinance or take out a home equity loan, the title and the mortgage need to line up.
Medicaid’s Five-Year Lookback
If long-term care coverage through Medicaid might be in your future, timing changes everything. Federal law imposes a 60-month lookback: transfer assets within five years of applying, and the state calculates a penalty period during which you’re ineligible for benefits.10Office of the Law Revision Counsel. 42 U.S. Code 1396p – Liens, Adjustments and Recoveries, and Transfers of Assets The penalty length equals the transferred home’s value divided by the average monthly cost of nursing home care in your state. A $300,000 home in a state where care runs $10,000 a month yields roughly a 30-month penalty during which you’d pay out of pocket.
The IRS gift tax exclusion is irrelevant here. Even the $19,000 annual tax-free amount counts as a gift for Medicaid purposes. Certain transfers are exempt from the penalty entirely: to a child under 21, to a blind or disabled child, to a “caretaker child” who lived in the home for at least two years before you entered a nursing facility and provided care that kept you at home longer, or to a sibling with an existing equity interest who lived in the home for at least a year before you were institutionalized. States administer Medicaid independently and documentation requirements for these exemptions vary, so families in this situation should plan with an elder law attorney well before the five-year window matters.10Office of the Law Revision Counsel. 42 U.S. Code 1396p – Liens, Adjustments and Recoveries, and Transfers of Assets
Preparing and Recording the Deed
Every transfer runs through a new deed. You’ll need the full legal names of the current owner (the grantor) and the child receiving the property (the grantee), plus the property’s legal description from the existing deed, which typically includes lot numbers, block numbers, and boundary references. A street address alone is not enough.
Parent-to-child transfers usually use a quitclaim deed, which passes whatever interest the grantor holds without guaranteeing clean title. A warranty deed offers the child stronger protection if title disputes surface later. Blank forms are available from your county recorder’s office, an attorney, or an online legal document provider.
The grantor signs the deed in front of a notary public, who verifies identity and applies an official seal. A deed that isn’t properly notarized won’t be accepted for recording. Then the signed, notarized deed goes to the government office in the county where the property sits, variously called the County Recorder, Register of Deeds, or County Clerk. You’ll pay a recording fee, usually calculated per page or as a small flat charge. Some counties also impose a documentary transfer tax based on the property’s value, with rates ranging from zero in some jurisdictions to over 2% in others. Once processed, the deed is stamped, a copy is kept on file, and the original is returned to the new owner.
What to Handle Right After Recording
Homeowner’s insurance is the most urgent item. An existing policy covers the named owner, and coverage generally cannot be transferred with ownership. Your child needs a new policy effective on the transfer date. Any gap leaves the house unprotected, and if a mortgage remains, the lender will require continuous proof of coverage.
Property tax reassessment is the second thing to check. In many jurisdictions, a change of ownership triggers a reassessment of taxable value. A home bought decades ago and long since appreciated could see a much larger tax bill after transfer. Some jurisdictions offer parent-to-child exclusions that limit or prevent reassessment, but availability and scope vary. Ask your county assessor before the transfer.
Think through the long-term plan too. If your child won’t live in the house, renting it out creates income tax and maintenance responsibilities, and selling it soon locks in the carryover basis and the capital gains bill that comes with it. When the main goal is passing the home to the next generation with the smallest tax cost, the math usually favors a transfer at death over a lifetime gift, because of that stepped-up basis. A lifetime transfer makes more sense when there’s a specific non-tax reason: helping a child who needs housing now, protecting the property from a parent’s creditors, or simplifying an estate spread across multiple states.