When a parent transfers a home to a child, it may seem straightforward. After all, it’s just a title change, right? Unfortunately, the truth is far more complex. From gift tax rules to cost basis and inheritance planning, the way property is transferred can have significant tax consequences—both now and in the future.

In this episode of Leibel on Fire, financial planner Leibel Sternbach explains what families need to know before making these decisions.

Do You Need to Report a Home Transfer to the IRS?

The first question most people ask is: if my parent gives me their home, do I need to tell the IRS? The answer depends on how the transfer happens.

• If it’s a purchase: If you buy the home from your parent at fair market value, it’s not considered a gift. No special reporting is required.

• If it’s a gift: If your parent gives you the home—or transfers it to you for less than its market value—the difference is considered a gift.

The good news is that most people won’t pay taxes on these gifts, thanks to the federal lifetime gift and estate tax exemption. This exemption allows individuals to give away millions of dollars during their lifetime or at death without triggering federal gift or estate taxes. However, the transfer still needs to be reported on a gift tax return, even if no tax is owed.

What Happens If You Sell the Home?

This is where things get tricky. If you receive the home as a gift, you also inherit your parent’s cost basis. That means if your parent bought the house for $20,000 in 1970 and it’s worth $500,000 today, your cost basis is still $20,000. If you later sell it for $1 million, you could face capital gains taxes on nearly the entire $980,000 profit.

On the other hand, if you inherit the property after your parent’s passing, you often receive a step-up in basis. In that case, your cost basis becomes the market value at the date of death—$500,000 in this example. If you sell for $1 million, you’d only owe taxes on the $500,000 gain. This difference could save hundreds of thousands in taxes.

The Importance of Estate Planning

Deciding whether to transfer a home during life or after death isn’t just a financial choice—it’s also an estate planning decision. Families need to weigh whether children need the property now, or if waiting until after death provides greater tax advantages.

State laws further complicate the picture. Some states impose their own gift or inheritance taxes. In places like Florida, counties rely heavily on estate-related taxes to fund local government, especially from non-residents. These rules make planning ahead critical.

Other Assets to Consider

Not all assets are treated the same. For example, annuities don’t receive the same step-up in basis as real estate. Heirs may owe income taxes on the growth portion, depending on how the annuity is structured. Proper planning—including beneficiary designations and payout elections—can minimize surprises.

Final Thoughts

Passing down a home or other assets isn’t just about love and legacy—it’s also about strategy. Without planning, what seems like a simple transfer can create major tax burdens for your heirs.

That’s why it’s essential to work with a financial advisor and, when appropriate, an attorney. Together, you can create an estate plan that ensures your wishes are honored while minimizing taxes and protecting your family.

Ready to Protect Your Legacy?

At Yields4U, we help families navigate the complexities of retirement, taxes, and estate planning. If you’re considering gifting or transferring a home—or if you’ve recently inherited property—schedule a consultation today.

👉 Book your consultation here