Generally, from a tax perspective, it is more advantageous to inherit a home rather than receive it as a gift before the owner's death. This article will delve into the tax aspects of gifting a home, including gift tax implications, basis considerations for the recipient, and potential capital gains tax implications.
Beneficiaries may need to pay out-of-pocket for ongoing expenses like property taxes, utilities, insurance and general upkeep. Also, the probate process is a matter of public record. This means that the details of your estate, including information about your home, become accessible to the public.
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The gift tax is a tax on the transfer of property by one individual to another while receiving nothing, or less than full value, in return. The tax applies whether or not the donor intends the transfer to be a gift. The gift tax applies to the transfer by gift of any type of property.
A: There are likely no taxes due if you gift instead of sell your home to your son. You could, in fact, avoid capital gains tax. Transferring the home to your son is considered a gift. Currently, you can gift up to the federal estate and gift tax exemption amount of $12.06 million.
When a house is transferred via inheritance, the value of the house is stepped up to its fair market value at the time it was transferred, according to the IRS. This means that a home purchased many years ago is valued at current market value for capital gains.
All About the Stepped-Up Basis Loophole. A stepped-up basis is a tax provision that allows heirs to reduce their capital gains taxes. When someone inherits property and investments, the IRS resets the market value of these assets to their value on the date of the original owner's death.
Many people worry about the estate tax affecting the inheritance they pass along to their children, but it's not a reality most people will face. In 2025, the first $13,990,000 of an estate is exempt from federal estate taxes, up from $13,610,000 in 2024. Estate taxes are based on the size of the estate.
If you inherit a house, changing the deed is one of the first things you'll want to do. It's an important step that ensures your name is on the deed and proves your legal entitlement to the property moving forward. Here's a step by step guide that breaks down this process.
“Cash is king when it comes to leaving an inheritance,” said Carbone. “It's the simplest asset to deal with in terms of a transfer.”
If you received a gift or inheritance, do not include it in your income. However, if the gift or inheritance later produces income, you will need to pay tax on that income.
When you receive a gift, you generally take the donor's basis in the property. (This is often referred to as a "carryover" or "transferred" basis.) The carryover basis is increased – but not above fair market value (FMV) – by any gift tax paid that is attributable to appreciation in the value of the gift.
Keeping the property can preserve family connections, help you navigate California's competitive market, and allow for potential property value appreciation. Additionally, you'll enjoy the tax benefits of homeownership and the comfort of staying in a familiar neighborhood.
Advantages and disadvantages of a gift deed versus a will
It is carried out during the donor's lifetime and the transfer occurs immediately, whereas "will" is only relevant after death. 2. A gift deed must be registered before it becomes effective. Registration makes it less likely to be sued.
The capital gains tax only applies if the sale of the inherited property yields a profit, which is calculated as the difference between the selling price and the property's value at the time of the previous owner's passing.
Your share of sales proceeds (generally reported on Form 1099-S Proceeds From Real Estate Transactions) from the sale of an inherited home should be reported on Schedule D (Form 1040) Capital Gains and Losses in the Investment Income section of TaxAct.
Similarly, some state-level programs or tax credits aimed at assisting first-time homebuyers may require that applicants do not currently own or have not recently owned other properties. By inheriting and taking legal ownership of a house, you could lose access to these benefits when purchasing another property.
Inheriting a home entails a range of financial responsibilities that can quickly add up. Property taxes, insurance premiums, ongoing maintenance costs and unexpected repairs can significantly strain beneficiaries' financial resources.
Beck, Lenox & Stolzer Estate Planning and Elder Law, LLC, knows from experience how bad behavior can erupt among the siblings as well. Many people think children automatically inherit a house when their parents die, but this isn't true. It's possible for children to inherit without a will, but it doesn't always happen.
Hypothetically, if a will or trust says you and your siblings receive equal shares of a property, all of you are entitled to use and enjoy it once you have title to it; however, in most instances, siblings jointly using and enjoying a property is impractical, so another agreement may have to be made about how to divide ...
Bottom Line. California doesn't enforce a gift tax, but you may owe a federal one. However, you can give up to $19,000 in cash or property during the 2025 tax year and up to $18,000 in the 2024 tax year without triggering a gift tax return.
If you're still a dependent of your parents and they're paying for your higher education--room and board for example--this isn't considered a gift. A transfer of $100,000 to you directly is considered a gift and may be taxable to the giver.
Amounts that exceed these limits are treated as deprived assets for five years from the date deprivation occurs. *$1,000 exceeds the $10,000 per financial year limit and is deprived.