Do NOT Add Your Children to the Deed of Your Home

Posted by Harvey L. CoxJun 22, 20210 Comments

When you put your children on the deed to your home or any other asset, you become a co-owner of the property with them. The legal effect of co-ownership can bring unintended results.

The first unexpected result is creating an IRS tax liability issue for yourself.  Putting your home in joint tenancy with your children is a taxable gift under IRS regulations.  You will have to file a gift tax return for the year in which you added your children's names to your deed if the value of the interest transferred to each child is more than $15,000 (2021).

The second unintended result is that you may inadvertently transfer the house to your child's ex-spouse or your child's creditors.  If your child has a judgment against him, that judgment creditor may be able to file a lien against your child's interest in your property.  If your child is going through a divorce, the ex-spouse may have a claim against your child's ownership interest in your home.

The third unintended consequence will occur when you sell your home.  When selling a home, you are allowed to exclude capital gains on the sale.  The exclusion is $250,000 for individuals and up to $500,000 for married couples.  But, since you now only own a fractional share of your home, you will only be able to use that capital gains exclusion on the portion that you own.  Each child named on your deed may then have a significant long-term capital gains tax problem that you can avoid by keeping the house in your name, transferring it to a Revocable Living Trust.