Transferring wealth to your children in the form of real estate or cash from the sale of a property can be a generous and meaningful way to support them. However, it’s crucial to understand the tax implications of gifting a home—or its proceeds—so you can avoid unintended consequences and maximize the benefits for your family.

Option 1: Gifting the Home Directly

You may choose to gift the home outright while you’re still living, transferring the deed to your child. This is often done to help them secure housing or gain equity early in life. But here’s what happens behind the scenes with the IRS:

Gift Tax Rules

In 2025, the annual gift tax exclusion is $18,000 per recipient.

You can gift up to $18,000 per child per year ($36,000 if both parents gift jointly) without filing a gift tax return.

If the home’s value exceeds that amount, you must file IRS Form 709, the Gift Tax Return.

Filing Form 709 does not necessarily mean you owe tax—it simply reduces your lifetime gift and estate tax exemption, which is approximately $13.61 million per individual in 2025 (subject to change).

No Step-Up in Basis

Gifting a home during your lifetime means your child inherits your carryover basis (your original purchase price plus improvements).

Example:

You bought the home for $150,000.
You gift it to your child when it’s worth $500,000.
They later sell it for $600,000.
Their capital gain is $450,000, and they may owe capital gains tax.

Option 2: Selling the Home and Gifting the Proceeds

Selling your home first allows you to gift the cash proceeds with more control and potential tax efficiency.

Capital Gains on the Sale

If the home is your primary residence, you may exclude up to:

$250,000 in gains (single filer), or
$500,000 (married filing jointly)

Example:

Sold home for $700,000
Purchased at $300,000
Gain: $400,000
If married, all gains may be excluded—no capital gains tax due

Then, you can gift the cash under the same $18,000 per year rule (or $36,000 as a couple).

Any amount over that requires Form 709 and reduces your lifetime exemption.

Advantages of Gifting Cash

The child receives cash with no tax responsibility.
They can use it for a home, college, investments, or debt.
You reduce your taxable estate and simplify estate planning.

Option 3: Inheriting the Home Upon Your Death

Leaving the home in your will or trust can offer significant tax advantages.

Step-Up in Basis

The home’s cost basis resets to the fair market value at your death.

Example:

Purchased at $150,000
Worth $700,000 at time of death
If sold for $700,000, no capital gains—no tax due

This is often the most tax-efficient method for passing on property.

Other Considerations

Using a Trust

A revocable living trust can help avoid probate and provide control over timing and terms of inheritance.

Medicaid Look-Back Period

Gifting your home may affect Medicaid eligibility if long-term care is needed within five years. Consult an elder law attorney.

Tax Filings

File IRS Form 709 for any gifts over $18,000 per recipient per year. Keep detailed records, especially if you’re using your lifetime exemption.

Gifting a home or its proceeds can support your children, but it requires thoughtful planning. Whether you transfer during your lifetime or leave property in your estate, each route has tax implications that can affect your family’s financial outcome.

Speak with qualified professionals—a CPA, estate planner, or real estate attorney—to ensure your gift is structured in a way that benefits both you and your children.