Gifting a house to a family member is not a tax write-off (deductible) for the donor, but it is possible to get a tax deduction if you donate the house to a qualified charity.
Gift the House
When you give anyone other than your spouse property valued at more than $19,000 ($38,000 per couple) in any one year, you have to file a gift tax form. But as an individual, you can gift a total of $15 million (in 2026) over your lifetime without incurring a gift tax.
Yes, you can give your daughter $100,000 to buy a house, but you'll need proper documentation for her mortgage lender and you'll likely need to file a gift tax return (IRS Form 709) because the amount exceeds the annual exclusion, though it won't usually result in taxes unless you've used up your large lifetime exemption. Lenders require gift letters proving the funds aren't a loan, and you can avoid gift tax impact by gifting up to the annual limit ($19,000 per person in 2025) each year or by using your substantial lifetime exemption.
Drawbacks to gifting real estate
Yes, gifting property to your child in Canada can trigger capital gains tax, as the Canada Revenue Agency treats the transfer as if you sold the property at fair market value. However, a principal residence exemption may reduce or eliminate the tax if the property was your primary home.
The main rule helping avoid large taxes on inherited property is the Step-Up in Basis, which resets the property's cost basis to its fair market value at the date of the original owner's death, drastically reducing capital gains tax if sold quickly. Other strategies include using trusts to avoid probate, making lifetime gifts, or, if it was your primary home, using the Section 121 exclusion after living in it for two years.
The most tax-efficient way to leave a home to a child usually involves leaving it in your will for them to inherit, which qualifies for a stepped-up tax basis (reducing capital gains tax if sold) and avoids immediate gift taxes, though trusts (like Revocable Living Trusts for probate avoidance or QPRTs for advanced planning) or Transfer-on-Death (TOD) deeds (where available) offer control and probate avoidance, while outright gifting is generally less tax-efficient due to inherited basis issues. Consulting an estate planning attorney is crucial to choose the best method for your specific situation.
The "$100,000 loophole" for family loans refers to a tax rule where lenders avoid reporting imputed interest if the total loan amount (plus any other outstanding loans to that borrower) is $100,000 or less, and the borrower's net investment income is $1,000 or less; otherwise, the lender's taxable imputed interest is limited to the borrower's actual net investment income, avoiding the higher Applicable Federal Rates (AFR) normally required, making it a way to offer lower-interest loans with minimal tax hassle for the family.
The IRS primarily learns about large gifts when you file Form 709, the Gift Tax Return, for amounts exceeding the annual exclusion (e.g., $19,000 per person in 2025). They can also discover gifts through third-party reporting (banks reporting large cash transfers), audits of your estate, or by matching transactions to public records, especially for significant asset transfers like property, which might trigger property tax reassessments.
Gift tax considerations: When you gift a property, it may be subject to the federal gift tax, depending on the home's value. As of the latest guidelines, any gift above the annual exclusion amount ($18,000 per recipient in 2024; $19,000 in 2025) must be reported to the IRS.
Gifting strategies can provide a valuable way to reduce Federal gift and estate taxes. Even taxable gifts can offer significant savings over potential Federal estate taxes through lower effective tax rates.
Yes, your parents can gift you a house, but it involves navigating tax implications (like filing gift tax forms and potential capital gains taxes for you) and legal steps, with potential downsides like higher property taxes or Medicaid transfer penalties for them, making it crucial to consult a lawyer or financial advisor to understand the specific federal and state rules, especially regarding the cost basis, gift tax exclusion, and lifetime exemption.
Fortunately, those gifting property generally don't need to worry about taxes unless the value exceeds the annual gift exclusion limit: $18,000 for tax year 2024, or $19,000 in 20251.
Step-Up in Basis for Inherited Assets
One tax advantage of leaving assets after death is the step-up in basis. This provision allows heirs to inherit assets at their fair market value at the time of death, effectively resetting the capital gains tax to zero for any appreciation during the decedent's lifetime.
It is possible to transfer property tax-free to a family member using the Principal Residence Exemption (PRE). The Principal Residence Exemption (PRE) is a tax rule that allows property owners to avoid paying capital gains tax on the sale or transfer of a principal residence.
Give more money away
Lifetime gifting is a straightforward way to begin reducing your IHT bill. By gifting money during lifetime, that would have been part of an inheritance anyway, you reduce the size of your estate so that there is smaller amount subject to IHT on your death.
Use the annual gift tax exclusion.
Each year, you can give a certain amount of property to a family member without incurring gift taxes. As of 2025, the annual gift tax exclusion is $19,000 per recipient. This means you can gradually transfer property over several years to minimize tax liabilities.
Whether you gift a house in its entirety or sell it to your child for $1, the Canada Revenue Agency (CRA) will assume that you sold it for Fair Market Value (FMV). Unless the home falls under the principal residence exemption, one or both of you will pay capital gains at some point.
The main difference is the timing of those tax charges. For example, when you provide a gift, you can choose the timing of that disposition to minimize the taxes owed. However, if you leave an inheritance, your estate will pay the taxes based on the market value at your date of death.