How Can You Buy a House for Someone Else?

Helping another individual acquire a home is a significant financial and personal milestone. This assistance can take various forms, each with distinct financial, legal, and tax implications for both the helper and recipient. Understanding these options requires clear insight into responsibilities and potential consequences. Careful planning ensures the arrangement achieves its purpose without unforeseen burdens.

Gifting Funds for a Home Purchase

Gifting funds for a home purchase is common but involves specific donor tax considerations. For 2025, an individual can gift up to $19,000 to any person without IRS reporting or gift tax implications. Married couples can collectively gift $38,000 to a single recipient in 2025 without reporting. Gifts exceeding this annual exclusion amount must be reported to the IRS on Form 709, which does not immediately result in gift tax.

Amounts gifted above the annual exclusion reduce the donor’s lifetime gift tax exemption. This lifetime exemption for 2025 is $13.99 million per individual, meaning most people will not owe federal gift tax on large gifts until the lifetime exemption is exhausted. The donor pays any gift tax, not the recipient. If gifted assets generate income, such as interest, the recipient pays taxes on that income.

Gifted funds aid mortgage qualification, especially for down payments. Lenders require a gift letter from the donor. The letter specifies the donor’s name, relationship, exact gift amount, and states the funds are a gift with no repayment expectation. Lenders also require proof of fund transfer to verify the down payment source.

Substantial financial gifts can impact eligibility for need-based financial aid or government benefits. For students, gifts affect Free Application for Federal Student Aid (FAFSA) eligibility, as both income and assets are considered. Gifts are reported as assets on the FAFSA and may be counted as untaxed income, potentially reducing aid eligibility. For government benefits like Medicaid or Supplemental Security Income (SSI), gifts can be considered assets or income, potentially pushing recipients over eligibility thresholds. Medicaid has a 60-month (five-year) “look-back” period; gifts made during this time can result in a penalty period of ineligibility.

Co-Owning a Home

Co-owning a home involves shared legal title and property partnership. Two common forms of co-ownership are Joint Tenancy with Right of Survivorship (JTWROS) and Tenancy in Common (TIC). In a JTWROS, co-owners typically hold equal shares, and upon the death of one owner, their interest automatically transfers to the surviving co-owners, bypassing probate. This automatic transfer occurs, but a joint tenant can sell their share, converting that ownership to Tenancy in Common.

Tenancy in Common allows unequal ownership percentages and has no right of survivorship. When a TIC co-owner dies, their share passes to heirs or beneficiaries via will or state intestacy laws, not automatically to other co-owners. This structure provides flexibility in transferring ownership. Both forms of co-ownership grant each owner the right to possess and enjoy the entire property.

Co-owners share financial and legal responsibilities: mortgage payments, property taxes, insurance, and maintenance. If one co-owner fails to contribute, others remain responsible for the full amount to avoid default. Property decisions, like renovations or leasing, require mutual agreement.

Co-owners can deduct their share of mortgage interest and property taxes if they itemize. If property taxes are paid from a joint account, the IRS presumes each account holder paid an equal amount, unless evidence suggests otherwise. The total deduction should not exceed the actual amount paid. When a co-owned home is sold, each unmarried co-owner who used it as a principal residence for at least two of the five years preceding the sale can exclude up to $250,000 of capital gain. Married couples filing jointly can exclude up to $500,000 of capital gain.

A formal co-ownership agreement is advisable to outline responsibilities, decision-making, and exit strategies. This document can specify expense splitting, maintenance responsibilities, and procedures for resolving disputes or selling shares. Such an agreement prevents future conflicts and clarifies expectations. When applying for a mortgage, all co-owners are considered; their credit histories and incomes influence loan approval and terms.

Purchasing a Home for Sole Occupancy

When a home is purchased for another’s sole occupancy, the owner retains full legal and financial responsibility, including accountability for mortgage payments, property taxes, homeowner’s insurance, and maintenance. The occupant has no ownership rights or direct responsibility for these costs, though contributions can be arranged.

The owner can establish various occupancy arrangements. A formal landlord-tenant relationship can be created via a lease agreement, outlining rent, occupancy duration, and responsibilities. This arrangement provides legal protections and obligations for both owner and occupant. Rental income is taxable, but the owner can deduct related expenses.

Deductible rental property expenses include mortgage interest, property taxes, operating costs, depreciation, insurance, and repairs. Residential rental property can be depreciated over 27.5 years, allowing the owner to recover the building’s cost over time. An informal arrangement with no rent constitutes a gift of occupancy. If fair market rental value exceeds the annual gift tax exclusion ($19,000 for 2025), the owner may report the gifted value on IRS Form 709, potentially reducing their lifetime gift tax exemption. Even informally, a written understanding prevents future disputes.

The owner can deduct mortgage interest and property taxes, whether or not rent is charged, if the home qualifies as a personal residence or rental property. If rented, these deductions are taken against rental income on Schedule E. The owner’s tax situation varies based on treating the property as rental or personal residence.

Estate planning is important for the owner, especially if the occupant will continue living in or inherit the home after the owner’s death. The owner should outline wishes in their will or other estate planning documents to ensure a smooth transition, avoiding legal complications for the occupant and securing their future housing and the property’s disposition.