Giving Your Home to Your Children Can Have Tax Consequences

Takeaways

• Gifting a home can require tax paperwork. If the home’s value exceeds $19,000 per recipient (in 2026), you generally must file a federal gift tax return, even if no gift tax is owed.
• Your children may owe capital gains tax if they sell. A gifted home usually keeps your original tax basis, which can create taxable gain.
• Living in the home may reduce taxes. If the child owns and uses the home as a primary residence for two years, they may be able to reduce capital gains tax.
• Inheritance is often more tax-friendly. Inherited homes generally receive a step-up in basis, lowering potential capital gains.
• Medicaid eligibility can be affected. Transferring a home may impact Medicaid long-term care coverage, depending on timing and method.
• Talk with an elder law attorney first. Legal advice can help you choose between a gift, trust, sale, or other strategy and avoid unintended consequences.

Many people wonder if it is a good idea to give their home to their children.

While it’s possible to do this, giving away a house can have major tax consequences, among other results.

You May Not Have to Pay a Gift Tax ...

When you give anyone property valued at more than $19,000 to a single individual in any one year (the annual exclusion amount as of 2026), you have to file a gift tax form. This is a reporting requirement for the person making the gift, and filing the return does not necessarily mean you will owe gift tax.

Also, under current law (2026), you can gift a total of $15 million over your lifetime without incurring a gift tax. This is a per-person limit (married couples may be able to combine exemptions in some situations). Gifts above the annual exclusion typically reduce (“use up”) part of your lifetime exemption, which is also tied to federal estate tax rules. If your residence is worth less than $15 million, you likely won’t have to pay any gift taxes, but you will still have to file a gift tax form.

... But Your Children May

While you may not have to pay gift taxes on the gift, if your children sell the house right away, they may be facing steep taxes. The reason is that when you give away your property, the tax basis (the original cost) of the property for the giver becomes the tax basis for the recipient.

In other words, “basis” is the starting number used to calculate taxable profit when a home is sold. It's often what you paid for the home, plus certain major improvements (for example, an addition or a new roof).

Suppose you bought the house years ago for $150,000, and it’s now worth $350,000. If you give your house to your children, the tax basis will be $150,000. If the children sell the house, they will have to pay capital gains taxes on the difference between $150,000 and the selling price.

The only way for your children to avoid the taxes is not always the “only way,” but it is one common way to reduce them: live in the house for at least two years before selling it.

To qualify for the full home-sale exclusion, they generally must own and use the home as their main home for at least two years during the five-year period ending on the date of sale (with some exceptions and partial exclusions in certain situations). In that case, they can exclude up to $250,000 ($500,000 for a couple) of their capital gains from taxes.

Inherited Property Vs. Gifted Property

Inherited property doesn’t face the same taxes as gifted property. If the children were to inherit the property, the property’s tax basis would be stepped up, meaning the basis would be the current value of the property. As a result, if the children sell soon after inheriting, there may be little or no taxable capital gain because the “starting point” for gain is much closer to the sale price.

However, the home will remain in your estate, which may have estate tax consequences. Many families won’t owe federal estate tax but it’s still important to consider state estate and inheritance taxes (where applicable) and your overall planning goals.

Beyond the tax consequences, gifting a house to children can affect your eligibility for Medicaid coverage for long-term care services at home or in a facility. This is why transferring a home is not just a tax move — it’s an estate planning decision that should be coordinated with long-term care planning.

In general, Medicaid reviews certain asset transfers made within a “lookback” period (commonly five years) before an application. A gift during that window can trigger a penalty period — a span of time when Medicaid won't help pay for long-term care even if you otherwise qualify.

Other options for giving your house to your children may be possible, including putting it in a trust or selling it to them. Because Medicaid rules and exceptions vary by state (and trust details matter), getting legal advice before you transfer the home is especially important.

Before you give away your home, consult a qualified elder law attorney near you. An attorney can help you compare estate planning options for passing on your home while minimizing taxes and avoiding unintended Medicaid eligibility problems.

Additional Reading

• Questions to Ask a Financial Advisor About Long-Term Care
• AARP Announces Its Top 100 Places to Live for Older Adults
• Probate Law: A Look Across States
• Five Things to Know to Reduce Your Capital Gains
• Is Using AI to Plan Your Will Safe?
• Can AI Robots Help Older Adults Live in Their Homes Longer?