Can You Buy Someone a House? What You Need to Know

Purchasing a house for another individual is a common arrangement, often driven by personal or financial reasons like assisting a family member or providing a gift. This transaction involves legal implications for ownership, specific financial methods, and tax consequences for both the buyer and recipient. Understanding these aspects is important for anyone considering this type of transaction, ensuring all parties are aware of their rights and responsibilities.

Understanding Property Ownership Arrangements

When one person purchases a house for another, the legal title can be structured in several ways.

Sole Ownership

With Sole Ownership, the property is titled exclusively in the recipient’s name. This grants the recipient full legal control and rights over the property. The buyer, despite funding the purchase, has no legal claim to the asset.

Joint Tenancy with Right of Survivorship (JTWROS)

The property can be held jointly. Joint Tenancy with Right of Survivorship (JTWROS) means both the buyer and recipient are listed on the deed and equally own the property. If one owner passes away, their share automatically transfers to the surviving joint tenant, bypassing probate. This provides a clear path for the property to pass directly to the remaining owner.

Tenancy in Common (TIC)

Another joint ownership option is Tenancy in Common (TIC), where multiple individuals hold ownership interests. Unlike JTWROS, TIC allows for unequal ownership shares. There is no right of survivorship with TIC; if one owner dies, their share becomes part of their estate and is distributed according to their will or state laws. This structure offers more flexibility regarding inheritance.

Living Trust

A Living Trust involves the buyer, as the grantor, transferring the property into a trust, with the recipient named as a beneficiary. The trust outlines how the property is managed and distributed, offering advantages such as privacy and avoiding the probate court process upon the grantor’s death. This allows the grantor to maintain some control over the property’s use and transfer.

Financing the Home Purchase

The method used to fund a home acquisition for another person impacts the financial relationship between parties.

Cash Gift

A Cash Gift involves the buyer providing the entire purchase amount directly to the recipient. If the recipient obtains a mortgage, lenders typically require a gift letter. This letter confirms the funds are a genuine gift with no expectation of repayment, preventing undisclosed debt that could affect loan approval. The letter includes:
The giver’s name and relationship to the borrower
The exact dollar amount
The source of the funds
A clear statement that no repayment is expected

Buyer Directly Purchases the Home

The buyer can directly purchase the home in their own name, allowing the recipient to reside there. This maintains full legal and financial control with the buyer, who holds the title and is responsible for any mortgage. The recipient has no ownership rights and lives in the home at the buyer’s discretion.

Co-signing a Mortgage

Co-signing a Mortgage involves the buyer joining the recipient on the mortgage application. Both parties become jointly responsible for loan repayment. This can help the recipient qualify for a mortgage or secure more favorable terms. However, co-signing means the buyer’s credit is affected, and they are legally obligated to make payments if the recipient defaults, potentially impacting their own debt-to-income ratio.

Buyer Obtains Mortgage Solely

Alternatively, the buyer can obtain a mortgage solely in their name and permit the recipient to live in the house. This is similar to a direct purchase, but the buyer takes on the full financial burden of the mortgage without the recipient being a co-borrower. The buyer is solely responsible for all loan obligations, and the recipient is merely a resident with no direct financial liability for the mortgage.

Intrafamily Loan

An Intrafamily Loan is a formalized alternative where the buyer lends money to the recipient to purchase the home. To avoid tax complications, the loan must include an interest rate at or above the Applicable Federal Rate (AFR) set by the IRS. This prevents the IRS from recharacterizing the loan as a gift, which could trigger gift tax implications for the lender.

Navigating Tax Considerations

When a house is purchased for someone else, tax implications arise for both the donor and recipient.

Federal Gift Tax

Individuals can gift up to $19,000 per recipient annually in 2025 without immediate tax, even if no tax is immediately due. If a gift exceeds this annual exclusion, the donor must file IRS Form 709, United States Gift (and Generation-Skipping Transfer) Tax Return. This reporting tracks the amount against the donor’s lifetime gift tax exemption. The lifetime exemption is $13.99 million in 2025. The donor is generally responsible for paying any gift tax. Filing Form 709 is necessary for gifts above the annual exclusion to ensure proper accounting against this lifetime limit.

Property Taxes

Property Taxes are an ongoing responsibility for the legal owner(s) of the property. These taxes are levied at state and local levels and vary by jurisdiction.

Income Tax Implications

Income Tax Implications can arise with intrafamily loans. If an intrafamily loan is made below the IRS’s Applicable Federal Rate (AFR), the IRS may “impute” interest income to the lender, meaning they will treat the lender as if they received interest income at the AFR, even if no interest was actually paid. This imputed interest can be considered taxable income. Loans under $10,000 may be exempt from imputed interest rules if tax avoidance is not a principal purpose.

Cost Basis for Capital Gains

The Cost Basis for Capital Gains is important for the recipient if they later sell the gifted property. For gifted property, the recipient’s basis for calculating capital gains is generally the donor’s original adjusted basis. This “carryover basis” means that if the property has appreciated significantly since the donor acquired it, the recipient could face a substantial capital gains tax liability upon sale. Specific rules apply if the property’s fair market value at the time of the gift was less than the donor’s basis.

Managing Ongoing Home Expenses

Beyond the initial purchase, homeownership involves continuous financial obligations distinct from the acquisition price, requiring careful planning between the buyer and recipient.

Property Taxes

Property Taxes are a constant expense, with legal responsibility falling on the recorded owner(s) of the home. These taxes are assessed annually by local authorities and contribute to public services, requiring regular payments to avoid liens or other penalties.

Homeowners Insurance

Homeowners Insurance protects the property against damage from events like fire or natural disasters. Mortgage lenders often require this insurance, which is typically paid by the owner or resident based on their agreement. The policy ensures financial protection for significant unforeseen events.

Utilities

Utilities, such as electricity and water, are typically the responsibility of the person residing in the home. These operational costs are incurred monthly and fluctuate based on usage and seasonal demands. A clear understanding of who covers these bills prevents disputes.

Maintenance and Repairs

Maintenance and Repairs represent an ongoing financial commitment, covering everything from routine upkeep to unexpected system failures. Homes require regular attention. Establishing who is responsible for these costs is important for preserving the property’s condition and value.