Q: My 42-year-old son will move home next month. I am 65 and thinking of downsizing. I would like to place him on the deed when he moves in and after two years, sell my home. Because he is on the deed, will up to $500,000 be tax exempt? Is this possible and what are the drawbacks with this arrangement?
A: First, what do you mean that you will "place him on the deed?" Will you be selling the house to him, or just adding his name to the deed?
If the latter, there are potential tax complications. This would be treated as a gift. The tax basis of the person giving the gift (the giftor) becomes the tax basis of the person receiving the gift (giftee).
For example, let's say you bought the house many years ago for $100,000 and now it is worth $500,000. Your tax basis is $100,000, excluding any improvements that you may have made along the way. If you give half of the house to your son, his basis becomes $50,000. If you then immediately sell it for $500,000, your profit is $200,000 (half of $500,000 less your basis). read more
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