The Hive Law - Estate Planning - Wills - Trusts

Tax Consequences Of Adding A Name To The Deed

Tax Consequences Of Adding Name To Deed - Tax Consequences Of Adding Spouse To Deed - Tax Consequences Of Adding Child To Deed

What are the tax consequences of adding a name to the deed?

In this article you’ll learn about: 

  • gift taxes
  • property taxes
  • capital gains taxes
  • loss of step-up in basis 
  • transfer taxes 
  • how to add someone to a deed 
  • how to avoid capital gains tax on inherited property 

Let’s dig in. 

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Tax Consequences Of Adding A Name To The Deed

When you add a name to a property deed, you’re essentially giving someone an interest in your property. 

Here are the main tax consequences of adding a name to a deed:

  • Gift Tax: If you add a name without receiving the property’s fair market value in return, it’s seen as a gift. You can give up to $15,000 per person each year without tax concerns. If you exceed this, you need to report the gift using a gift tax return.
  • Property Taxes: Making changes to the deed can sometimes cause a property tax reassessment. If the property’s value is reassessed higher, your taxes might go up.
  • Capital Gains Tax: The person you add to the deed might face capital gains tax when selling the property. They’ll calculate this tax based on the original property price, which might result in a larger tax bill.
  • Loss of Step-Up in Basis: If someone inherits property, they often benefit from a “step-up” in value for tax purposes. If you add them to the deed, they might miss out on this benefit, leading to a higher tax when they sell.
  • Potential Future Conflicts: Adding a name makes that person a co-owner. They now have rights to the property, which could lead to disagreements later on.
  • Creditor Exposure: The property can become a target for the new co-owner’s debts. If they owe money, creditors might look at the property as a way to get paid.
  • Transfer Taxes: Some places charge a tax or fee when you change the names on a deed.

Read More: If My Name Is On The Deed Do I Own The Property?

Gift Taxes

Gift tax for real estate is the tax when you give property like a house or land as a gift. 

In the U.S., there’s a yearly gift tax exclusion. 

This means you can give a certain amount of property, including real estate, without paying gift tax or needing a gift tax return.

As of last year, the annual exclusion amount was $17,000 per recipient. 

This means you could give up to $17,000 worth of real property to each recipient each year without triggering gift tax consequences.

The value of the real estate for gift tax purposes is generally its fair market value at the time of the gift. 

This is the price that the property would sell for on the open market between a willing buyer and a willing seller.

If you give someone more than the annual exclusion amount in a single year, you may need to file a gift tax return with the IRS. 

However, this doesn’t necessarily mean you will owe gift tax. 

The return is for tracking your use of the lifetime exemption.

The lifetime exemption covers the total amount you can give away (whether as gifts during your lifetime or as part of your estate upon your death) without being subject to gift or estate tax. 

The lifetime exemption amount changes over time due to inflation adjustments and legislative changes. 

Any gifts that exceed the annual exclusion amount count toward this lifetime exemption. 

The latest lifetime exemption is $12.06 million.

Read More: How To Transfer A Property Deed From A Deceased Relative

Property Taxes

Property taxes are what local governments charge on properties like land, houses, and buildings. 

This money is usually used for things like schools, roads, and safety services in the area.

Adding a name to a property deed can have property tax consequences.

Here are some potential property tax consequences of adding a name to the deed to consider:

  • Change in Ownership: Adding a name to the deed might be seen as a change in ownership by the local tax authorities. This change could trigger a reassessment of the property’s value for tax purposes. If the property’s value has increased since the last assessment, the property tax liability could increase as a result.
  • Property Tax Exemptions: Some jurisdictions offer property tax exemptions (like the Homestead Exemption) or discounts for certain categories of property owners, such as senior citizens, veterans, or disabled individuals. When you add a name to the deed, the ownership structure may change, potentially affecting your eligibility for these exemptions.
  • Transfer Taxes: Certain jurisdictions impose transfer taxes or fees when there’s a change in property ownership. While these are different from property taxes, they are often associated with property transfers and can add to the overall cost of adding a name to the deed.
  • Ownership Percentages: If you’re adding someone to the deed as a co-owner, the ownership percentages will likely be defined. These percentages could impact how property taxes are allocated between co-owners, especially if local tax laws determine tax liability based on ownership share.

Read More: Does A Spouse Have The Right To Property After Signing A Quit Claim Deed?

Capital Gains Taxes

Capital Gains Tax is a tax on the profit made from selling an asset that has increased in value since it was purchased. 

Here’s how adding a name to the deed might affect Capital Gains Tax:

  • Change in Ownership Date: If you add a name to the deed, the date when you first owned the property might change. This can affect how much tax you pay when you sell it.
  • Primary Residence Exemption: Adding someone’s name might affect if they can avoid paying some tax when they sell the property. This depends on if the property is their main home.
  • Gifted Property and Basis: If you gift part of your property by adding a name, the person you give it to might have a different “tax basis.” This affects how much tax they pay when they sell.
  • Joint Ownership: When you add someone as a co-owner, they might have to pay tax on their share’s value when they sell it later.
  • Estate Tax Implications: Adding a name might change the value used for tax when the property is passed on after you pass away. This affects future tax if the new owner sells.

Read More: Am I Entitled To My Husband’s Property If He Dies And My Name Isn’t On The Deed?

Loss Of Step Up In Basis

Adding a name to a property deed can potentially result in the loss of the “step-up in basis” benefit upon the original owner’s death. 

When someone passes away, their heirs often get a “step-up” in the tax basis of inherited property. 

This means the property’s value is “stepped up” to its current market value, as of the date of the original owner’s death. 

This can be a big tax advantage because it reduces the potential Capital Gains Tax if the property is sold in the future.

The tax consequences of adding a name to the deed could include:

  • Loss of Full Step-Up: If you add a name to the property deed, the property’s basis might not get the full step-up upon your death. Instead of stepping up to the property’s value at your death, the basis might only get a partial step-up to its value when the co-owner was added to the deed.
  • Capital Gains Tax Impact: When the property is eventually sold, the person who inherited it might have to pay more Capital Gains Tax than if they had received the full step-up in basis. This is because the difference between the selling price and the new stepped-up basis is what determines the taxable gain.
  • Estate Tax Implications: If the property is part of your estate and your estate is subject to estate tax, the inclusion of the property could increase the taxable value of the estate. This might lead to more estate tax being owed.

Read More: Am I Entitled To My Husband’s Property If He Dies And My Name Isn’t On The Deed?

Transfer Taxes

Adding a name to a property deed can have transfer tax consequences.

Transfer taxes are imposed by local or state governments when the ownership of real estate is transferred. 

Here’s how adding a name to the deed might affect transfer taxes:

  • Transfer Tax Liability: When ownership changes, a transfer tax might apply. This tax is usually a percentage of the property’s value or the consideration paid for the transfer.
  • Gift vs. Sale: The type of transfer (gift or sale) can impact the transfer tax. If you’re simply adding a name as a co-owner, it might be seen as a gift and could still trigger a transfer tax, even if no money is exchanged.
  • Consideration: If money or something of value is exchanged as part of adding a name to the deed, even if it’s not a full sale, it might be subject to transfer tax based on the consideration provided.
  • Tax Exemptions: Some jurisdictions offer exemptions from transfer tax for certain types of transfers, such as transfers between spouses or within a family. Adding a family member’s name might trigger a lower tax rate or an exemption.

Read More: If My Name Is On The Deed But Not The Mortgage Can I Refinance?

How To Add Someone To A Deed

Here’s a general outline of how to add someone to a deed::

  • Ownership Type: Decide on the type of ownership you want. Common options include “Joint Tenants with Right of Survivorship” (JTWROS) or “Tenants in Common.” 
  • Draft a Deed: Prepare a new deed reflecting the change in ownership. This might involve a quitclaim deed, warranty deed, or other appropriate type. It should clearly outline the names of current and new owners, the property’s legal description, and the type of ownership.
  • Notarization: Most deeds need to be notarized to be valid. In most states, only the Seller should sign the deed in front of a notary public.
  • File the Deed: The signed and notarized deed needs to be recorded at the local land records office or county clerk’s office. This officially updates the property ownership records.
  • Title Search: Before recording the deed, a title search might be done to ensure there are no outstanding liens, claims, or issues with the property’s title.
  • Consider Tax Implications: Understand the potential tax consequences, such as gift tax or transfer tax. Consult with tax professionals to determine any financial implications.
  • Notify Mortgage Lender: If the property has a mortgage, check with the lender to ensure that adding someone to the deed won’t violate any mortgage terms or trigger due-on-sale clauses.
  • Update Homeowner’s Insurance: Update the homeowner’s insurance policy to include the new owner’s name and ensure proper coverage.

Read More: Do You Need A Lawyer To Remove A Name From A Deed?

FAQs About The Tax Consequences Of Adding A Name To The Deed

Here are other questions our clients ask us about the tax consequences of adding a name to a deed. 

How To Avoid Paying Capital Gains Tax On Inherited Property

Avoiding capital gains tax on inherited property can be complex.

There are strategies that might help minimize or eliminate the tax burden.

Here’s how to avoid paying capital gains tax on inherited property: :

  • Step-Up in Basis: In many jurisdictions, inherited property receives a “step-up” in its tax basis to its fair market value on the date of the original owner’s death. This can significantly reduce or eliminate capital gains tax when the property is sold. Keeping good records of the property’s value at the time of inheritance is crucial.
  • Hold and Sell Later: If you inherit a property and hold onto it for a while before selling, any appreciation in value during that time might be subject to lower capital gains tax rates or even excluded if the property qualifies for special rules.
  • Use as a Primary Residence: If it becomes your primary residence for a certain period, you may be exempt from the capital gains tax.
  • Use Tax-Advantaged Accounts: In some cases, you might be able to use tax-advantaged accounts, such as a 1031 exchange, to defer capital gains tax when selling inherited property and reinvesting in other real estate.
  • Gift the Property: If you don’t intend to keep the inherited property, gifting it to a family member might transfer the ownership without triggering capital gains tax. However, gift tax rules could apply.
  • Charitable Donations: Donating the property to a qualified charity might allow you to avoid capital gains tax while also providing potential charitable deductions.

Read More: Can Someone Sell A House If Your Name Is On The Deed?

Should My Parents Put Their House In My Name

Deciding whether your parents should put their house in your name before they pass away is a complex decision.

Here are some benefits of your parents putting your name on their house before passing away: 

  • Avoiding Probate: Transferring the property into your name before your parents pass away might help avoid the probate process, which can be time-consuming and costly.
  • Estate Planning: Transferring property early might be part of your parents’ overall estate planning strategy to simplify the distribution of assets after their passing.
  • Medicaid Planning: If your parents are concerned about Medicaid eligibility for long-term care, transferring the property might have implications on their eligibility. 

Here are some considerations before asking your parents to add your name to their house before passing away: 

  • Tax Implications: Transferring property ownership could trigger gift tax, capital gains tax, and property tax changes. Consult with tax professionals to understand the potential tax consequences.
  • Loss of Control: Once the property is in your name, you become the legal owner. This might impact your parents’ control over the property, including decisions about selling, mortgaging, or gifting it.
  • Medicaid Look-Back Period: Many jurisdictions have a “look-back” period during which transferring assets, including property, might affect Medicaid eligibility for long-term care. Consult with experts familiar with local laws.
  • Future Sale: If you sell the property after inheriting it, you might face capital gains tax based on the original purchase price. Inherited property often receives a “step-up” in basis, which can reduce capital gains tax.
  • Liabilities: If you encounter financial difficulties or legal issues, having the property in your name might expose it to potential liabilities.
  • Ownership Among Siblings: If you have siblings, transferring property ownership can lead to complex family dynamics and potential disagreements.

Should I Put My House In My Child's Name?

Transferring your house into your child’s name can have certain benefits,

Here are some reasons why you should put your house in your child’s name::

  • Simplified Inheritance: Transferring ownership might streamline the inheritance process, making it easier for your child to take ownership of the property when you pass away, potentially avoiding the probate process.
  • Avoiding Probate: The property might avoid the probate process entirely if it’s in your child’s name at the time of your passing, potentially saving time and costs.
  • Potential Tax Benefits: Depending on your jurisdiction’s tax laws, your child might receive a step-up in basis for the property’s value at the time of your passing. This can reduce capital gains tax if they sell the property later.
  • Ease of Sale: If your child plans to sell the property soon after inheriting it, having the property in their name already might facilitate a quicker sale.
  • Potential Long-Term Care Planning: Transferring property ownership might be part of a strategy to qualify for Medicaid or other long-term care benefits, although there are strict rules around this.

Read More: What Are My Rights If My Name Is Not On A Deed But Married

Get Help With Transferring A Deed Into Someone's Name

If you want to add your name to a deed, fill out the form below. 

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