Sell your house for $1 to your kid?

19 Jun 2022 · 1 min

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In this short monologue, Jerry Taylor addresses a common misconception that transferring a home to a child for $1 can avoid probate and qualify the property for Medicaid exemption after five years. He outlines three primary reasons why this strategy is problematic: (1) the IRS treats the $1 transfer as a gift, requiring the filing of a gift tax return even if no tax is due; (2) the child, unless they live in the home, will face substantial capital gains tax when they eventually sell, based on the original purchase price versus current value; and (3) as a co‑owner, the child can independently encumber or otherwise use their share of the property, such as taking out a loan. Taylor concludes by urging viewers to follow him for more money‑saving advice, implying that professional guidance is preferable to DIY legal maneuvers.

Chapters

This is for all the clever people that have told me they don't need no stinking lawyer, they're just gonna sell their house for a dollar to their kid. Put your kid on the title to the home for $1, and then you avoid probate if you were to die, and after 5 years, the home is exempt from Medicaid. Brilliant. Here's 3 reasons of many why that's a bad idea. Thing 1, in the eyes of the IRS, that's a gift. Probably won't require gift tax, but you will have to file a gift tax return. Thing 2, unless your kid lives in the home, they're gonna have to pay capital gains tax when they turn around and try to sell it. If you bought it in 1965 $40 grand and now it's worth $1 million, that tax assessment is going to be a big number. And thing 3, as a co-owner, your kid can do whatever they want to with their share of the home, including get a loan on it. Follow me and I will save you money.