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Should my parents transfer their home to me?

On Behalf of | Sep 21, 2014 | Long Term Care Planning | 0 comments

When doing long term care planning, a child may ask their parents to transfer the family home to him or her for $1.  The child may think that this is a purchase, but it is considered to be a gift to the child.  A Deed will need to be prepared and signed by the parents and the child.  Should the child want this gift? The 9/14/14 post looked at this transfer from the parents’ perspective.

Once the home belongs to the child, it will be the child’s responsibility to pay the real estate taxes and the homeowner’s insurance. If the child does not live in the home, the child may lose the homestead exemption, of which the parents’ had the advantage to reduce these taxes. The child may need to charge the parents’ rent to pay the taxes and insurance.  The child’s basis in the home (what the child is considered to have “paid”) will be the parents’ basis (what the parents paid for the home plus any improvements or major repairs, like a new roof). When the child sells the home, the child may have to pay capital gains tax on the difference between the sales price and the basis.  Capital gains tax is usually much higher than the 4.5% Pennsylvania inheritance tax that the child would have paid to inherit the house after the parents’ deaths.  However, if the child lives in the home, there is a capital gains tax exclusion.  Before a home is transferred as part of long term care planning, it is best to consult with a certified elder law attorney to discuss all of the issues, for the parents and the child.