Although there are no tax deductions for giving gifts, even to your children, should you decide to give your home to your offspring, there could be tax consequences. You can legally avoid some tax implications if you plan properly. However, just as no good deed goes unpunished, gifts of real estate can be costly acts of generosity without careful tax planning. Before gifting your home, consider the potential tax implications.
You can give your home to your child tax free, provided it falls below the gift tax limits.
Giving a House to a Child
When you give something of value without getting something of equal value in return, you've given a gift. Taxpayers giving gifts attract IRS attention because of gift tax regulations. Giving your home to your children tax free is possible, however. You're allowed to give up to a certain amount each year tax free to family members, but if you exceed those limits, you'll owe taxes on the amount. Since the cost of a house can well exceed those limits, it's important to keep them in mind before handing over your home.
Capital gains taxes may also come into play if you give your home to your child and he sells it in the future. Should the child occupy the home – and never sell it – potential capital gains taxes, which could be significant, will not apply. However, upon the sale of the home, capital gains taxes are due on the difference between the cost basis and the selling price of the home. When you gift a home to a child, the basis is the price you paid for it, not its value when you gifted it. This can amount to a large gain on the sale and many tax dollars due.
Estate Tax Exceptions
In addition to being allowed to gift a certain amount each year, the IRS also lets you give away a certain amount over the course of your lifetime. For 2018, that lifetime limit is $11.18 million, up substantially from $5.49 million in 2017. Although your house's worth likely falls well below the limit, it's important to note that this will count against any amount you leave to your loved ones when you die. If your home is worth a half a million dollars, for instance, it will shrink the nontaxable part of your estate to $10.68 million upon your death.
Gift Limits Under 2018 Taxes
As of 2018, you're allowed to give up to $15,000 to an individual without paying taxes on the amount. If your gift of a home exceeds this amount, you will report the gift on Form 709. If, however, you choose to count the amount toward your estate or it falls below $15,000, you won't need to mention it on your tax return, although you should keep records of the transaction.
Gift Limits for 2017 Taxes
Those who give instead of sell a house to a child in 2017 will be limited to $14,000 per child before they'll need to pay taxes on the gift.