What Is the Best Way to Give Your House to Your Child?

The best way to give your house to your child, for most families, is to let them inherit it at your death rather than transfer it during your lifetime. Inheritance resets the home’s tax basis to its current market value, which can wipe out decades of built-up capital gains. The main tools that accomplish this are a will, a revocable living trust, and a transfer-on-death deed. Lifetime options exist too, including outright gifts, life estate deeds, and selling the home to your child, but each carries tax or control tradeoffs you should weigh before signing anything.

Why Inheriting Beats Gifting on Taxes

The single most important concept in this decision is the stepped-up basis. When your child inherits property, their tax basis becomes the home’s fair market value on the date you die, not what you originally paid.¹ If you bought the house for $120,000 decades ago and it’s worth $450,000 when you die, your child’s basis becomes $450,000. A quick sale at that price produces zero capital gains tax.

Gifting the same house during your lifetime does the opposite. Your child inherits your original cost basis.² A $100,000 home you paid for thirty years ago that is now worth $500,000 passes to your child with a $100,000 basis. If they sell for $500,000, they owe capital gains tax on $400,000 of profit. Inheriting the same house would have erased that entire gain. For appreciated real estate, this difference alone can mean tens or hundreds of thousands of dollars in avoidable tax.

Leaving the House Through a Will

Naming your child as beneficiary of your home in a will is the simplest route. The stepped-up basis applies, so the capital gains advantage is fully preserved. A will is also inexpensive to draft and easy to update as your life changes.

The drawback is probate. A will must go through a court-supervised process that validates the document, settles your estate’s debts, and transfers the property to your child. Probate commonly runs several months to over a year, carries court and attorney fees, and is part of the public record. Anyone can look up what you owned and who received it.

If your child inherits a home with an outstanding mortgage, they are not personally liable for the balance simply because they received the property.³ The mortgage remains a lien on the house, so they will need to keep making payments, refinance, or sell to pay it off. Federal law stops the lender from calling the full loan due just because the borrower died and a relative inherited the home.⁴

Using a Revocable Living Trust

A revocable living trust delivers the same stepped-up basis as a will while skipping probate entirely. You create the trust, retitle the house into it, and name your child as beneficiary. As trustee during your lifetime, you keep full control: live in the house, sell it, refinance, or dissolve the trust whenever you want.

At your death, the property passes directly to your child under the trust’s terms. No court involvement, no public filing, and typically no delay beyond the paperwork your successor trustee has to handle. The home gets the stepped-up basis just as it would under a will.¹

Setup costs more than a will because an attorney needs to prepare the trust document and you need to retitle the house. After retitling, contact your insurance company and have the trust added as an additional insured so coverage stays intact. Because the trust is revocable, the IRS still treats the home as your asset, so it offers no protection from creditors and does not shield the home from Medicaid.

Transfer-on-Death Deeds

A transfer-on-death deed, sometimes called a beneficiary deed, works like a payable-on-death designation for real estate. You sign a deed naming your child as beneficiary, record it with the county, and that’s it. You keep full ownership and control during your lifetime. You can sell the property, mortgage it, or revoke the deed at any point. When you die, the house passes to your child outside probate, and the stepped-up basis applies.¹

The catch is availability. More than 30 states and the District of Columbia currently allow TOD deeds, but a sizable minority do not. Where it is available, a TOD deed is one of the most straightforward planning tools because it requires no trust, no ongoing management, and minimal expense. Where it isn’t, a revocable trust gets you to the same place at higher cost.

Life Estate Deeds

A life estate deed splits ownership into two pieces. You keep the “life estate,” meaning the right to live in and use the property for the rest of your life. Your child receives the “remainder interest” and becomes full owner automatically at your death. The transfer happens by operation of law and avoids probate.

The tax treatment is favorable. Because the home is included in your gross estate, your child’s remainder interest gets a stepped-up basis at your death.¹

The tradeoff is loss of flexibility. Once you sign a life estate deed, you generally cannot sell, refinance, or take out a reverse mortgage without your child’s written consent, because they already hold a legal interest in the home. As the life tenant, you are typically responsible for property taxes, insurance, and routine maintenance; major structural issues may be shared depending on what the deed says. Creating a life estate also counts as a gift of the remainder interest for tax purposes and can trigger the Medicaid look-back, discussed below.

Gifting the House Outright

Gifting during your lifetime is the most direct transfer method and the worst for capital gains. You sign a new deed, record it, and the transfer is complete. The problem is the carryover basis described above: your child takes your original cost, not current market value, and faces the full gain whenever they sell.

The gift also triggers federal reporting. The annual gift tax exclusion for 2026 is $19,000 per recipient, and a house almost always exceeds that.⁵ You won’t owe gift tax unless you’ve already used up your lifetime exemption, but you do have to file Form 709 to report the gift.⁶ The amount above $19,000 is subtracted from your lifetime exemption, currently $15 million per person for 2026.

If the home has a mortgage, federal law stops the lender from calling the loan due when ownership transfers to your child.⁴ You remain on the loan, though, unless the lender releases you or your child refinances. Your child also cannot claim the primary residence capital gains exclusion when they sell unless they have lived in the home as their own primary residence for at least two of the five years before the sale.⁷

Selling the House to Your Child

Selling at fair market value sidesteps the carryover basis problem because your child’s basis becomes whatever they paid. It can make sense when you need the proceeds for retirement. You may also qualify for the primary residence exclusion, which shelters up to $250,000 of gain for a single filer or $500,000 for a married couple filing jointly, provided you owned and lived in the home for at least two of the five years before the sale.⁷

A “bargain sale” below market value is a hybrid. The IRS treats the gap between sale price and fair market value as a gift.⁸ If the home appraises at $400,000 and you sell to your child for $250,000, the $150,000 difference counts against your lifetime exemption and requires a Form 709 filing.

Seller Financing

If your child can’t qualify for a traditional mortgage, you can finance the sale yourself with an installment note. The IRS requires you to charge at least the Applicable Federal Rate (AFR); otherwise the below-market interest is treated as an additional gift. For January 2026, the AFR runs from 3.63% for loans of three years or less up to 4.63% for loans longer than nine years.⁹ The AFR is updated monthly, so check the current rate before finalizing the note. Interest your child pays you is taxable income, and any principal gain over your basis is a capital gain.

The 2026 Gift and Estate Tax Exemption

Fear of “gift tax” scares many families away from lifetime transfers, usually unnecessarily. For 2026, the federal lifetime gift and estate tax exemption is $15 million per person under the One, Big, Beautiful Bill Act signed into law on July 4, 2025.⁵ A married couple can shelter up to $30 million combined. In practical terms, the vast majority of families owe no federal estate or gift tax on a home transfer regardless of method. The annual exclusion remains $19,000 per recipient for 2026.¹⁰ Gifts above that amount still require a Form 709 so the IRS can track your running lifetime total.⁶

Medicaid Planning and the Five-Year Look-Back

If you might need Medicaid to cover nursing home or long-term care costs, timing matters. Federal law imposes a look-back period of 60 months before a Medicaid application.¹¹ Any transfer made for less than fair market value during that window can trigger a penalty period during which Medicaid won’t pay for long-term care.

The penalty length is the uncompensated transfer value divided by the average monthly cost of nursing home care in your state. With the average private nursing home room exceeding $8,000 per month nationally, gifting a $400,000 house could create a penalty stretching past four years. You’d be paying nursing home costs out of pocket for that entire stretch.

The look-back applies to outright gifts, life estate deeds, and transfers to irrevocable trusts. A sale at fair market value does not trigger a penalty because you received full compensation. Wills and revocable trusts are also safe, because the property doesn’t leave your estate until you die. TOD deeds similarly avoid the issue, since you retain full ownership during life.

Medicaid also sets a home equity limit for eligibility. For 2026, states can set that limit anywhere from $752,000 to $1,130,000.¹² If your home equity exceeds your state’s threshold, you may not qualify for Medicaid-funded long-term care at all, regardless of when or whether you transferred the property.

Property Taxes and Transfer Costs

Property taxes can change dramatically after a transfer. Many states reassess value when ownership changes, and a home assessed modestly for decades can jump to current market value overnight. That reassessment can add hundreds or thousands of dollars per year in property taxes for your child. A handful of states offer exemptions for parent-to-child transfers, but most do not. Check your local assessor’s rules before finalizing anything.

Most transfers also involve state or local transfer taxes, with rates ranging from nominal flat fees to several percent of the home’s value. About a third of states charge no state-level transfer tax at all, though counties or cities may still impose one. Recording a new deed typically costs between $10 and $100 depending on the county. Factor in recording fees, transfer tax, and attorney fees for preparing the deed or trust.

Comparing the Options

Will: Simplest to set up and preserves the stepped-up basis. Goes through probate, which takes time and costs money. No Medicaid look-back issue.
Revocable living trust: Same stepped-up basis as a will, avoids probate. Costs more to establish. No Medicaid protection.
Transfer-on-death deed: Cheapest probate avoidance where available, stepped-up basis applies, full control retained. Not offered in every state.
Life estate deed: Avoids probate and gives the stepped-up basis. You lose the ability to sell or refinance without your child’s consent. Triggers the Medicaid look-back.
Outright gift: Immediate transfer, but your child takes your low cost basis and faces a larger capital gains bill on sale. Triggers the Medicaid look-back.
Sale at fair market value: Child gets a fresh basis at the purchase price. No Medicaid penalty. You need financing in place, and you may owe capital gains on the sale.

For most families with an appreciated home and no urgent reason to transfer ownership, letting your child inherit at death through a will, revocable trust, or TOD deed is the most tax-efficient path. The stepped-up basis alone can save tens or hundreds of thousands of dollars compared with an outright gift. If you need to transfer during your lifetime for Medicaid planning, start at least five years before you anticipate needing care, and work with an elder law attorney who can structure the transfer to minimize the penalty.

1
Office of the Law Revision Counsel. 26 U.S. Code 1014 – Basis of Property Acquired From a Decedent
2
Office of the Law Revision Counsel. 26 U.S. Code 1015 – Basis of Property Acquired by Gifts and Transfers in Trust
3
Consumer Financial Protection Bureau. Does a Person’s Debt Go Away When They Die?
4
Office of the Law Revision Counsel. 12 U.S. Code 1701j-3 – Preemption of Due-on-Sale Prohibitions
5
Internal Revenue Service. What’s New – Estate and Gift Tax
6
Internal Revenue Service. Instructions for Form 709
7
Office of the Law Revision Counsel. 26 U.S.C. 121 – Exclusion of Gain From Sale of Principal Residence
8
Internal Revenue Service. Frequently Asked Questions on Gift Taxes
9
Internal Revenue Service. Section 1274 – Determination of Issue Price in the Case of Certain Debt Instruments Issued for Property (Rev. Rul. 2026-2)
10
Internal Revenue Service. IRS Releases Tax Inflation Adjustments for Tax Year 2026, Including Amendments From the One, Big, Beautiful Bill
11
Office of the Law Revision Counsel. 42 U.S. Code 1396p – Liens, Adjustments and Recoveries, and Transfers of Assets
12
Centers for Medicare & Medicaid Services. 2026 SSI and Spousal Impoverishment Standards