Can You Gift a Home to a Family Member?

Gifting a home to a family member is a significant decision. While legally possible, it triggers financial and legal considerations for both the giver and recipient. Understanding these implications helps avoid unintended consequences and ensures a smooth property transfer.

Transferring Ownership

Legally transferring ownership begins with executing a deed, the formal document conveying property rights. Common deed types for gifting property include quitclaim, warranty, and grant deeds. A quitclaim deed is often used for family transfers, conveying the grantor’s interest without guarantees about title history or liens. A warranty deed offers the highest protection by guaranteeing clear title, while a grant deed provides more limited assurances.

All deeds must contain specific information: full legal names of the grantor (giver) and grantee (recipient), a precise legal description of the property, and the grantor’s signature. Once drafted, the deed requires notarization, verifying the grantor’s identity and signature.

After notarization, the deed must be officially recorded with the appropriate local government office, typically the county recorder or clerk’s office. Recording provides public notice of the ownership change and protects the recipient’s interest. The process involves submitting the original deed with required forms and paying a fee, which varies by county. Consulting legal professionals is advisable to ensure all steps are followed and avoid complications.

Gift Tax Rules for the Giver

Gifting a home involves federal gift tax rules. The IRS imposes a gift tax on property transfers, but provisions can reduce or eliminate the actual tax liability. For 2025, an annual gift tax exclusion allows a person to give up to $19,000 to any individual recipient without incurring gift tax or requiring a gift tax return. This exclusion applies per recipient, meaning a giver can gift $19,000 to multiple family members in the same year without tax implications.

When the gifted home’s value exceeds this annual exclusion, the giver must file IRS Form 709, “United States Gift (and Generation-Skipping Transfer) Tax Return.” This form is a reporting requirement, even if no gift tax is immediately due. It tracks cumulative taxable gifts over a person’s lifetime to determine if they exceed the lifetime gift tax exemption.

For 2025, the lifetime gift tax exemption (also known as the unified credit) is $13.99 million per individual. Any portion of a gift exceeding the annual exclusion reduces this lifetime exemption. For example, if a home valued at $200,000 is gifted to one person, the $19,000 annual exclusion applies, and the remaining $181,000 reduces the giver’s lifetime exemption. Gift tax is only owed if the cumulative value of taxable gifts exceeds this substantial lifetime exemption.

To complete Form 709 accurately, the giver must provide specific details about the gift: the fair market value at the time of the gift, often requiring a professional appraisal. Donor and donee information, including names, addresses, and taxpayer identification numbers, is also required. Form 709 must be mailed to the IRS and is crucial for documenting the transfer and managing the lifetime gift and estate tax exemption.

Income Tax Considerations for the Recipient

The family member receiving a gifted home faces income tax considerations regarding the property’s tax basis. For gifted property, the recipient generally takes on the donor’s original adjusted basis. This “carryover basis” means the donor’s cost basis carries over to the recipient. The adjusted basis typically includes the original purchase price plus the cost of any significant improvements, less any depreciation.

This carryover basis significantly impacts the recipient’s potential capital gains tax liability if they later sell the home. If the recipient sells the property for more than this carryover basis, the difference is a capital gain. For instance, if a home purchased for $100,000 is gifted when its fair market value is $300,000, the recipient’s basis for capital gains calculation remains $100,000. If the recipient then sells the home for $350,000, their taxable capital gain would be $250,000.

This rule contrasts sharply with the “stepped-up basis” treatment for inherited property. When property is inherited, its basis is typically “stepped up” to its fair market value on the date of death. Using the previous example, if the home had been inherited instead of gifted, and its value at death was $300,000, the heir’s basis would be $300,000. Selling it later for $350,000 would result in a capital gain of only $50,000, a much lower taxable amount. This difference highlights that while gifting a home avoids probate, it may result in a higher capital gains tax burden for the recipient upon a future sale compared to inheritance.

Broader Implications of Gifting a Home

Beyond federal gift and income tax considerations, gifting a home can have additional financial and legal consequences. Property taxes are one important area. In some jurisdictions, gifting a home may trigger a property tax reassessment, increasing its assessed value to current fair market value. This reassessment can lead to a significantly higher annual property tax bill for the recipient, as rules vary by state and local municipality.

Another significant implication involves Medicaid eligibility, particularly for long-term care benefits. Medicaid programs typically have a “look-back period” for asset transfers, 60 months (five years) in most states. If a home is gifted within this look-back period before applying for Medicaid, the transfer can result in a penalty period of ineligibility for benefits. This rule prevents individuals from divesting assets to qualify for assistance; the penalty period length depends on the gifted asset’s value.

For the giver, gifting a primary residence means forfeiting the ability to utilize the Section 121 capital gains exclusion. This provision allows homeowners to exclude up to $250,000 of capital gains (or $500,000 for married couples) when selling a principal residence. To qualify, the home must have been owned and used as a primary residence for at least two of the five years preceding the sale. By gifting the home, the giver relinquishes this tax exclusion.