Reviewed and updated October 16, 2026

A gift is not automatically tax-free

Transferring real estate to a child or another relative requires more than changing a deed. Federal gift tax, the recipient’s basis, state transfer taxes, property-tax exemptions and outstanding debt can all matter. A below-market sale can be partly a gift. A transfer involving a mortgage needs additional analysis.

A federal gift-tax return may be required even when no gift tax is payable. The annual exclusion and lifetime exemption are different rules; using available exemption does not eliminate filing obligations. The donor, rather than the recipient, generally handles gift-tax reporting.

The recipient inherits important tax history

A lifetime gift generally carries the donor’s basis for calculating gain, with special rules when fair market value is lower and other adjustments. An inherited asset generally follows different basis rules. This means gifting an appreciated property now can produce a larger taxable gain when the recipient sells than a family expects.

For example, a property worth much more than its original cost does not automatically receive a new market-value basis merely because the deed changes hands. The amount of any future gain depends on the applicable basis and later sale costs.

Plan before signing

Gather purchase records, improvement receipts, depreciation history, debt balances and a supportable valuation. Ask an attorney about the deed and ownership consequences, and have the tax implications reviewed before recording the transfer.

Review any homestead or other local exemption separately. A federal gift-tax result does not establish the state or local result. Keep a permanent record of the transfer and provide the recipient with basis information. An informed family transfer coordinates legal documents, tax reporting and the recipient’s future filing needs.

Official sources

This guide provides general information. The rules depend on the tax year, jurisdiction and your circumstances. Ask our team which filing or planning steps apply to you.