When you gift your home to your children, if they ever sell the house, they are responsible for paying taxes on the value gained during their ownership as well as the value gained during your ownership.

For example, if you bought a house for $100,000 and it is now worth $200,000, when your children sell the house, they will owe capital gains taxes on the $100,000 value gained as well as any value gained during their ownership.

How to Reduce or Eliminate Capital Gains Taxes

However, assets that are left to heirs receive a step-up in cost basis. A step-up in basis adjusts the value of an asset when it passes from an owner to their heir at death.
This means the value the house has gained during your ownership will not be subject to capital gains taxes when the property is sold.

In the same scenario, if your children receive the $200,000 value house as an inheritance, upon selling the house, they will now only owe capital gains taxes for value added to the house during their ownership -- instead of the value gained during your ownership as well.

A house can benefit from the step-up in basis by passing the assets through a will, life estate, or trust.

Estate Planning Attorney

Speak with an Estate Planning Lawyer today. Contact one of our attorneys at our Wisconsin (414-253-8500), Minnesota (612-204-2300), or California (310-438-4020) locations for a free consultation!