Hidden Tax Traps in Family Home Transfers

Richard Montgomery on Apr 29, 2025

Dear Monty: We want to know how to sign our house over to our son without any tax involvement. Should we just add his name to ours or use a quick claim deed? There is no money involved; the house is free and clear.

Monty's Answer: Your desire to transfer your home to your son is understandable, as many parents consider this option for estate planning purposes. However, several important considerations must be made before proceeding. First, there is no way to avoid "tax involvement" when transferring real estate. Even when no money changes hands, the IRS and state tax authorities still view property transfers as taxable events. Here's what you should know:

Gift Tax Implications: When you transfer your home to your son without receiving fair market value in return, the IRS considers this a gift. While you won't pay immediate tax on this gift, you must file a gift tax return (Form 709) if the home's value exceeds the annual gift exclusion (currently $19,000 per person per recipient). The gift will count against your lifetime estate and gift tax exemption.

Capital Gains Tax Considerations: One significant drawback to gifting your home during your lifetime is that your son will inherit your tax basis in the property. If he sells the house later, he may face substantial capital gains taxes. In contrast, if he inherits the property after your passing, he will receive a "stepped-up basis" to the home's fair market value at your death, potentially eliminating capital gains tax. You can visit IRS.gov and search for Publication 523 to learn how it works.

Property Tax Consequences: In many states, transferring property can trigger reassessment for property tax purposes, potentially increasing his annual tax bill significantly.

Options To Consider: Rather than immediately transferring the title, consider choosing one of three paths below:

No. 1: Consult an estate planning attorney: Before making any decisions, speak with a professional who can advise on your situation.

No. 2: Consider a transfer-on-death deed: Many states allow you to record a deed that transfers ownership automatically upon your death, avoiding probate while preserving the stepped-up basis.

No. 3: Establish a revocable living trust: This can provide for smooth transfer while maintaining your control during your lifetime.

If you're concerned about potential nursing home costs or Medicaid eligibility, be aware that transferring assets can trigger a "lookback period" that may affect your eligibility for benefits.

As for your specific questions, adding your son's name to your deed creates joint ownership but doesn't avoid gift tax implications and may create complications if either party faces creditor issues. A quitclaim deed (not a "quick claim") transfers whatever interest you have in the property but offers few protections for the recipient and doesn't avoid tax consequences.

While your intentions are admirable, this decision involves complex legal and tax considerations that could have long-lasting financial implications for you and your son. I strongly recommend consulting with an estate planning attorney and a tax professional before proceeding with any property transfer. I am not a CPA or an accountant, and I am not qualified to give tax advice. I shared anecdotal options here based on personal situations and transactions I have witnessed to encourage you to seek competent advice.

Richard Montgomery is a syndicated columnist, published author, retired real estate executive, serial entrepreneur and the founder of DearMonty.com and PropBox, Inc. He provides consumers with options to real estate issues. Follow him on Twitter (X) @montgomRM or DearMonty.com.

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