The Tax and Liability Traps of Adding a Child to Your Deed
Did You Know? Did you know Valentine’s Day spending in the U.S. is expected to hit a record $27.5 billion in 2025? That’s more than any other seasonal holidays (besides Christmas). It’s true! Here are three more fun facts surrounding the Day of Love! Candy is the most popular gift for Valentine’s Day! About 56% of people plan to give candy this year, more than flowers, cards, or jewelry. Did you know Americans are expected to spend roughly $2.5 billion on candy alone for Valentine’s Day? That’s a serious sweet tooth! Greeting cards are also a big deal! Around 145 million Valentine’s cards are exchanged on Feb. 14 each year, making it second only to Christmas for card-giving!
Many parents think adding a child to their home’s title will make inheritance easier and avoid probate. In reality, it often creates unnecessary tax issues, financial risk, and estate planning problems. What seems like a simple fix can expose your home to your child’s liabilities and undo years of careful planning. Before making changes to your deed, it’s important to understand the risks and why better options exist to protect your home and your family’s future. HOW DEEDING PROPERTY TO A CHILD CAN CREATE COSTLY TAX SURPRISES Adding a child to your home’s deed may feel generous, but it means giving up ownership now, not later, and can trigger serious tax and legal consequences under federal and California law. Let’s take a closer look at the hidden tax risks. Immediate Tax Consequences of Transferring Ownership When you transfer a deed to a child, the IRS considers it a gift. That’s because you’re giving away an ownership interest in a high-value asset without receiving anything in return. This doesn’t mean you have to pay a tax, though. Any amount you gift over the exemption amount is subtracted from your lifetime gift tax exemption amount. Capital Gains Taxes When the Home Is Sold This is where many families get caught off guard. When a homeowner sells their primary residence, they may exclude up to $500,000 of capital gains if married, or $250,000 if single. But this exclusion only applies to the original owner’s share of the property. If your child is on the deed but doesn’t live in the home, their share may be fully taxable when the house is sold, leading to significant capital gains. By contrast, passing the home through a trust or estate plan can provide a step-up in cost basis, often eliminating most or all of that tax burden. Property Tax Reassessment Under Proposition 19 California’s Proposition 19 limits parent-to-child tax advantages. If you add your child to the deed or transfer a deed to a child, the home may be reassessed at full market value, unless: • The child moves into the property as their primary residence, and • Files both the homeowner’s exemption and the parent-child exclusion forms
Do you have a friend who needs our help? When you’re done reading, give them this newsletter and recommend they scan our QR code. We can help them solve their tax, business, or estate planning problems before things get worse.
HOW CAN YOUR CHILD’S FINANCIAL LIABILITIES ENDANGER YOUR HOME? • Creditor claims and lawsuits • Divorce and marital property division • IRS or tax-related liens • Loss of full control over your home
2 tqdlaw.com | 916-545-2790
Made with FlippingBook Ebook Creator