Oct 03, 2010

Should I put my daughter on my house's deed?

house.jpgDear Liza: My house is worth a lot more now than when I bought it in 1972. My daughter recently got divorced. I was thinking of putting her name on the property deed to help her rebuild her credit and get a new start. Is that a good idea? Generally, that's a bad idea, unless you really want to give her 1/2 the house. Because that's what you're doing, legally, when you put her name on the deed. You will need to file a gift tax return by April 15th of the next year for that gift. Because you have the ability to give up to $1 million dollars during life free of the gift tax, you probably won't owe any gift tax for the transfer, but you still have to report it. But that's not the only reason I wouldn't recommend it. Here are two more: First, your house would be subject to her creditors--if she gets in a car accident, or owes money, your house will be at risk; Second, since your house is worth a lot more now than it was when you bought it, your daughter would be better off inheriting it from you after your death--she'd get it at what's called a stepped-up basis, which means that your house would be transferred to her at the value it has when you die, not at the value that you purchased it at in 1972. And that value, called the tax-basis, is what is used to calculate capital gains taxes--the higher the basis, the lower the capital gains when the property is sold. If you give her half the house now, she'll get that 1/2 at the 1972 basis, which means that if she sells the property some day, she'll owe capital gains on that half for all of the appreciation since 1972. So, you are a nice parent, but there has to be some other way to help your daughter get back on her feet financially.