Should your kids get the house now or inherit it?

The tax shows up when your kids sell

Many parents plan to pass the house down to their kids someday, and a common question is whether to give it to them now or leave it for them to inherit. The tax doesn’t show up when the house changes hands. It shows up when your kids sell the house and the IRS measures their profit.

That profit is the sale price minus what the IRS treats as their cost for the house, often called the cost basis. How your kids get the house decides what that number is.

If you give them the house now

If you give your kids the house now, the IRS treats it like they paid what you paid for it. When they sell, they could owe tax on all the growth since the day you bought it.

For a house you bought decades ago, that growth can be a big number, and all of it can end up in your kids’ taxable profit.

If they inherit the house instead

If your kids inherit the house, the IRS treats it like they paid what the house was worth when you passed. This is often called a step-up in basis. If they sell it for around that price, there’s little or no profit to tax.

So if the value of your house has gone up a lot, like it has for many homeowners, letting your kids inherit it usually means a much smaller tax bill than giving it to them now.

The tax math is one part of the decision. It helps to look at it alongside the rest of your estate and retirement plans before you change who owns the house.

How we handle it

At Sansone CPA & Financial, we coordinate your tax, investment, and retirement decisions so choices about the house are made with your kids’ future tax bill in view. That starts with retirement income planning in Crystal Lake, IL built around your tax return.