Gift Deeds: Giving Real Estate to a Family Member

A gift deed transfers ownership of real estate without payment. It can be simple to sign, but it can have gift tax, income tax and Medicaid consequences, so planning matters.

How a gift deed works

• The owner signs a deed that names the recipient and states that the transfer is a gift.
• The deed is usually notarized and recorded with the county.
• Ownership moves immediately and generally cannot be undone.

Issues to check first

• Federal gift tax reporting rules for large gifts.
• The recipient may take over your tax basis, which can mean a larger capital gains tax later.
• A mortgage may have a due-on-sale clause.
• Giving away property can affect Medicaid eligibility under look-back rules.
• You lose control and the home can be exposed to the recipient's creditors.

Alternatives

A transfer on death deed in states that allow it, a revocable trust or a will may avoid some downsides. Each has tradeoffs for control, taxes and probate. See our guides to deed types and trusts.

Steps

1. Talk to an estate planning or tax professional.
2. Check the mortgage and insurance.
3. Use the deed form your county accepts.
4. Sign before a notary and record the deed.

Gift taxes and basis

A gift of property may require filing a federal gift tax return if its value exceeds the annual exclusion, though most people owe no gift tax because of the lifetime exemption. The bigger issue for many families is basis. A person who receives property as a gift generally takes the donor's original cost basis, which can mean a large capital gains tax later. Property inherited at death often receives a stepped-up basis instead.

Medicaid look-back and long-term care

• Transfers for less than fair value within the Medicaid look-back period can trigger a penalty period of ineligibility.
• Exceptions exist for certain transfers, such as to a spouse or disabled child.
• Talk to an elder law attorney before gifting a home if long-term care is a possibility.

Mortgage, insurance and property tax issues

1. Check for a due-on-sale clause in your mortgage.
2. Notify your insurer, since the recipient may need their own policy.
3. Ask the county about property tax reassessment or exemptions.
4. Check homestead and senior exemptions that you may lose.
5. Confirm transfer tax and recording requirements.

Retaining some rights

Some owners reserve a life estate so they can live in the home for life, while the remainder passes to the recipient. This changes tax and Medicaid consequences and can be complicated. Review with an attorney.

Alternatives to a gift during life

• A transfer on death deed in states that allow it.
• A revocable living trust.
• A will.
• Joint ownership, which has its own risks.

Terms to know

• Donor: the person giving the property.
• Donee: the person receiving it.
• Basis: the tax value used to compute gain or loss.
• Gift tax return: IRS form reporting large gifts.
• Life estate: the right to live in property for life.
• Medicaid look-back: a period when transfers can cause ineligibility penalties.

Checklist before you gift real estate

1. Talk to a tax advisor about gift tax and basis.
2. Check the mortgage and insurance.
3. Consider your long-term care needs.
4. Check property tax exemptions you may lose.
5. Use a deed form that meets your state's rules.
6. Record the deed and keep copies.

Frequently asked questions