Can I Buy a House in My Child’s Name?

Considering the purchase of a home in a child’s name is a complex decision for many parents. While the intention often centers on providing a secure future or facilitating an early start in real estate, this path involves numerous legal, financial, and tax considerations. Understanding these intricacies is important before proceeding with such a significant asset transfer.

Legal Ownership and Control

Placing a property in a child’s name establishes their legal ownership, a status with distinct implications. A minor, typically under 18, generally lacks the legal capacity to enter into binding contracts, including those related to real estate transactions like buying, selling, or mortgaging property. While a minor can legally hold title, a parent or guardian often cannot freely manage or dispose of the asset on the child’s behalf.

For any real estate transaction involving a minor’s property, court approval is usually required to ensure the minor’s interests are protected. This process can involve appointing a legal guardian or conservator, which may be time-consuming and incur additional legal expenses. Such court oversight restricts the parent’s flexibility and control over the property until the child reaches the age of majority.

Once the child reaches the age of majority, 18, they gain full legal control over the property. The former minor can sell, mortgage, or otherwise manage the property independently, even if these decisions go against the parents’ original intentions. The transfer of real estate as a gift is generally irreversible; parents cannot reclaim ownership without the child’s consent.

If a property is gifted to a minor, parents effectively relinquish direct legal control. This loss of control means parents cannot unilaterally decide to sell the home, use it as collateral for their own loans, or dictate its future use. Any judgments or creditors against the child, once they reach adulthood, could also potentially attach to the property.

Tax Implications for Parents and Child

Gifting a house to a child involves several tax considerations for both parents and the child. Parents must consider federal gift tax rules, which apply when property is transferred for less than its fair market value. For 2025, individuals can gift up to $19,000 per recipient without triggering gift tax reporting requirements or using their lifetime exemption. Married couples can effectively combine their annual exclusions, allowing them to gift up to $38,000 to a single recipient in 2025 without tax implications.

If the value of the gifted property exceeds the annual exclusion amount, parents must file IRS Form 709, the United States Gift Tax Return. Filing this form does not necessarily mean gift tax is owed immediately; rather, the excess amount reduces the parents’ lifetime gift and estate tax exemption. For 2025, the lifetime exemption is $13.99 million per individual, meaning most people will not pay federal gift tax during their lifetime.

The child, as the recipient of the gifted property, generally receives the donor’s original cost basis. This is known as a “carryover basis.” When the child eventually sells the property, capital gains tax will be calculated based on the difference between the sale price and this carryover basis. If the property has significantly appreciated since the parents originally acquired it, the child could face a substantial capital gains tax liability upon sale, potentially higher than if they had inherited the property (which typically receives a “stepped-up” basis to fair market value at the time of inheritance).

If the property is rented out, the rental income and related expenses would be reported on the child’s tax return. This could subject the child to the “kiddie tax” rules if they are a minor or a full-time student under age 24. For 2025, the kiddie tax rules state that the first $1,350 of a child’s unearned income is tax-free. The next $1,350 is taxed at the child’s own marginal tax rate, but any unearned income exceeding $2,700 is taxed at the parents’ marginal tax rate.

Financing and Funding Options

Acquiring a house with the child as the legal owner presents unique financing challenges. A minor typically cannot obtain a mortgage in their own name. Lenders require borrowers to be of legal age to sign binding loan agreements, meaning traditional mortgage financing directly in a minor’s name is generally not feasible.

Parents often consider options such as co-signing a mortgage. When parents co-sign, they become equally responsible for the loan repayment. This arrangement creates a significant financial liability for the parents, impacting their own debt-to-income ratio and potentially their ability to secure future loans. Default on the mortgage would negatively affect both the parents’ and the child’s credit.

Another approach involves parents purchasing the property outright with cash and then gifting it to the child. This avoids mortgage financing complexities for a minor, but it still triggers the gift tax considerations discussed previously. Alternatively, parents might gift cash to the child, who then uses those funds for the purchase.

Parents could also take out a mortgage in their own names, own the property themselves, and then transfer it to the child later. This allows parents to manage the mortgage without involving the child in the loan obligation. However, transferring the property later would still be considered a gift, subject to the same gift tax implications. The primary challenge remains the child’s inability to directly secure financing until they reach legal adulthood and establish their own creditworthiness.

Protecting the Asset and Future Considerations

Once a property is in a child’s name, parents often seek ways to protect this asset. A common strategy involves holding the property within a trust for the child’s benefit. A trust is a legal arrangement where a trustee manages assets for a beneficiary, providing a layer of control and protection direct ownership does not.

Establishing a trust allows the parents, as grantors, to dictate the terms under which the child can access or control the property. For example, the trust document can specify that the child receives the property or its proceeds at a certain age, such as 25 or 30, rather than at the legal age of majority. This provides protection against a young adult potentially mismanaging the asset due to inexperience or poor financial judgment.

Assets held in a trust can also be shielded from various risks, including the child’s creditors, potential divorce proceedings, or irresponsible spending habits. The trustee is legally obligated to manage the property in the child’s best interest according to the trust’s provisions.

The choice of direct ownership versus a trust can also impact a child’s eligibility for financial aid for higher education. Assets held directly in a child’s name are typically assessed more heavily in financial aid calculations, such as FAFSA, than assets held in a parent’s name. Student-owned assets can be assessed at a rate of up to 20%, while parent-owned assets are assessed at a lower rate, typically up to 5.64%. A property held in an irrevocable trust where the child is the beneficiary may still be counted as an asset for FAFSA purposes, depending on the trust’s terms and accessibility.

Utilizing a trust can also simplify estate administration for the parents by avoiding probate for that specific asset upon their passing. The property, already held within the trust, can be distributed to the child according to the trust’s terms without going through the lengthy probate process. This provides a streamlined transfer of assets.