With the rising cost of homeownership, many families are considering gifting their homes to their adult children. This generous intent is great. However, estate planning is needed to ensure that the estate or heirs don’t face a large tax bill. A recent article from Realtor.com, “What You Need To Know Before You Gift Your Kids Real Estate,” recommends working with an experienced estate-planning attorney to create and document your wishes to avoid IRS scrutiny or other challenges.
Generational wealth can be passed on. However, there are limits on gifting amounts, even for cash. An annual exclusion is the amount a person may give to any single recipient before incurring a gift tax. A single person may gift up to $19,000 per year to as many people as they want, with no gift tax. Married couples may combine their individual exclusions to give a total of $38,000 per recipient. Some estate planning attorneys advise keeping gifts well below these thresholds to avoid errors. If you go over the exclusion amount, you’ll need to file a gift tax return.
In 2026, the estate lifetime gift and estate tax maximum is $15 million. This is the total amount that can be gifted above the annual exclusion throughout a person’s lifetime, and that can be in their estate before any federal estate tax applies. Oregon still does not have a separate lifetime gift tax; the only transfer tax at the state level remains the Oregon estate tax, and the current exemption for Oregon estates is still $1,000,000 unless and until legislation is enacted. Here is a link to the NW Estate Law page on Oregon and Washington Estate Tax Planning: Estate Tax Planning - NW Estate Law, LLC.
Be Wary of the Loss in Step-Up
When real estate is gifted during life instead of being inherited, the recipient usually loses the full “step‑up” in basis that would have applied at death, which can significantly increase capital gains tax if the property is later sold. This trade‑off is important to weigh against other goals like Medicaid planning, creditor protection or family assistance.
Step‑up in basis vs. lifetime gifts
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Step‑up at death. If real estate passes at death, the heir’s tax basis generally becomes the property’s fair market value on the date of death (or alternate valuation date), so only post‑death appreciation is taxed on sale.
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Carryover basis for gifts. When you make a lifetime gift of appreciated real estate, the recipient usually takes your original basis (plus certain adjustments), so all prior appreciation remains embedded and potentially taxable when they sell.
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Practical result. In many families, an outright lifetime gift of long‑held property can create a much bigger capital gains bill for the next generation than if the same property were inherited.
When lifetime gifts still make sense
Even with the loss of step‑up, lifetime transfers can be appropriate in certain situations.
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For very large estates. Shifting future appreciation out of the estate may outweigh the capital gains cost to heirs especially if there is not large growth on gifted assets.
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Medicaid and long‑term care planning. Some clients gift or reposition real estate to manage eligibility, recognizing they may be trading tax efficiency for asset‑protection objectives.
Loans and Other Techniques
Loans are also used to provide money to children, rather than a gift. This helps the recipient and the donor avoid gift tax issues. However, it must be properly documented. The agreement must outline payment terms, interest and any necessary deadlines. A loan agreement helps establish that the transaction is a loan rather than a gift, as gifts exceeding the gift tax exclusion make the donor subject to tax.
Other options may involve planning with family businesses but these are complex and you should always involve an estate planning attorney.
Estate planning attorneys advise parents to ensure that their adult children are prepared for real estate or other inheritances. Is it realistic for siblings to own a home together? Will they be able to work through the issues of homeownership, including maintenance costs? If one child lives nearby and the other lives on the opposite coast, how will they share the house? A bigger question: do the kids even want the home?
One of the most important tips for parents who want to pass on real estate or money is to work with an experienced estate-planning attorney to document every step of the process. The estate planning attorney will address all the what-if’s, drawing on years of experience helping families. When completed in a timely manner, an estate plan enables efficient transfer of wealth with as few bumps as possible.
Reference: Realtor.com (Dec. 15, 2025) “What You Need To Know Before You Gift Your Kids Real Estate”
