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For this option, simply submit a gift tax return (Form 709) and your personal tax return (Form 1040) during the year you made the gift. You don’t have to pay gift tax, but gift tax returns will help track your gifts every year.
If your estate is greater than $13.99 million, you will end up paying gift tax, depending on the amount of your taxable estate exceeds $13.999 million. Remember these two things about the thorough gift option:
- When you give a gift to the house, there is no strengthening foundation.
The basics to carry around are suitable here. The cost of your child to sell the home in the future will be the initial price you pay for it.
From the example in option 1 below, this means your child will have a taxable profit at the time of sale to $350,000 instead of $50,000. If the homeowner’s exclusion covers the full profit, then the money doesn’t matter. If not, your child will likely be subject to capital gains tax.
Carry forwarding and strengthening basic examples
| Option 1 | Option 2 | ||
| Purchase price | $200,000 | Purchase price | $200,000 |
| Carry forward basics | $200,000 | Strengthen the basics | $500,000 |
| Selling price | $550,000 | Selling price | $550,000 |
| profit | $350,000 | profit | $50,000 |
| Homeowner exclusion | $250,000 | Homeowner exclusion | $250,000 |
| Taxable profit | $100,000 | Taxable profit | cover |
| Capital gains tax rate (random) | 15% | Capital gains tax rate (random) | 15% |
- You are tax-free in your diet.
The estate tax exemption is the amount of life exemption that will be smaller each time it is used, although most people’s estate will drop below $13.99 million.
Summary: Who should give their house directly?
If you want your children to own a home while you are alive and they are eligible for the exclusion of the homeowner, consider this route. Avoid this route if you are worried about a lifetime exemption of over $13.99 million or your child has to pay a tax base.
Option 4: Fund your child’s home purchase
Let’s take a quick detour. Options 1, 2 and 3 are for parents who want to give their children a house directly. If you want to sell your house to your kids, there are a few different routes you can take.
A reliable option is to sell your home all to your children. This is a great option if your child is already satisfied and wants to make money in an affordable way.
Rather than asking for the full price of the house when selling, consider making installments in full. It works like this: Say your home assessment determines your home value is $500,000. If your child is able to pay a down payment of 10% or $50,000, create a note for the remaining $450,000. Make sure the letter is written and that you have made it clear that the monthly payment your child must pay to you.
Seriously, you need to charge at least the applicable federal rate (AFR) or the market rate for the loan. As of April 2025, this is AFRS:
- Short-term AFR: 4.16%
- Intermediate AFR: 4.21%
- Long-term AFR: 4.61%
As long as the notes legally guarantee it to the House of Representatives, each month, when your child pays principal and interest in the notes, they can deduct interest payments as qualified mortgage interest. However, you still have to pay tax on that interest income.
You can also help your child with annual gifts up to $19,000 in the case of annual gift tax exclusion. However, make sure the two streams, gifts and notes are separated. If you forgive notes for paying for gifts, the IRS may consider the entire sale to be a discount sale.
With this option, your child’s base in the home will become the full purchase price, which will likely avoid any future capital gains taxes when selling the home.
Summary: Who should buy a house for your child?
If you want your kids to make money at an affordable price, consider this route. Avoid this route if you don’t think your child can pay at applicable federal rates.