best way to transfer home to son

Forum|Forum|10 months ago
July 16, 2025
2 replies
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I bought a house in SD that I rent to my son as he kept getting priced out of rentals. He is a single Dad with 3 kids. This was before my husband and I moved to TN for his work. I am retired with just SS. The rental income from the house covers the mortgage, insurance, taxes and improvements as it was in disrepair. I show a small loss each year after depreciation. My husband makes about $100,000. and is not on the deed of the house.

The goal is to transfer the house to my son. I purchased it for about $90,000 4-5 years ago. The current mortgage is about $56,000 @ 3.2%. The current value is about $175,000 as it still needs work. My will shows he gets the house and there is a life insurance that would pay off the mortgage. But we would like to transfer it sooner if we can find a way that doesn't hurt us on taxes.

Should I put the just the house in a Trust in SD with my son as the beneficiary? Sell it to him CFD at what he's currently paying for rent? I can't assign the mortgage. I/m concerned about how gift taxes, capital gains taxes, etc would affect both his taxes and me and my husbands taxes.

What would you advise? Our CPA in SD retired and I was quoted about $450 to meet with his replacement to discuss this. We file through TurboTax now. Thanks for your guidance!

Bsch4477

Level 15

You have a very low interest rate on your mortgage and if he can afford the rent he pays you which takes care of your expenses and you get a tax loss on your rental you might want to keep the current arrangement. At your death he inherits the home tax free.

user17524531726Author

Level 2

Thank you. That is the current plan but we wanted to check other options just in case.

Opus 17

Level 15

You can't actually report a rental loss on your tax return unless you are renting at fair market rates. Unless he pays rent at fair market rates (what you would charge a stranger to rent the same house in the same neighborhood in the same condition) there is not much financial advantage to renting.

If you simply gift him the house by quitclaim deed, there are no taxes owed by you, unless your lifetime total of gifts is more than about $15 million. You would have to file a form 709 gift tax return but no tax is owed. He would also receive your cost basis (what you paid originally, plus what you and he have paid for permanent improvements.

The only concern I know of, is that if you require long term medical care and apply for Medicaid, Medicaid can claw back gifts made within the previous 5 years. I'm sure there are other ramifications of giving him the house vs renting it to him at cost.

If you are renting at fair market rates, then it is probably slightly to your advantage to continue renting, unless you or he just want to put the house in his name to avoid entanglements.

pk_

Level 15

@user17524531726 agreeing with the excellent reply from my colleague @Bsch4477 , I am just wondering why are you even considering the transfer now ? Why the rush ? Is there something else you are trying to achieve beyond your "Will" in the transfer of the asset to your son ? Are you trying to get it out of your asset collection for other reason like "spending down" for medicare ?

Have you considered a "life estate" like mechanism --- however that may have ( depending on the exact circumstances and facts ) whether a step-up is available at your passing. If that is what want to do, perhaps a discussion with an attorney is advisable.

M-MTax

Level 15

I agree with @Bsch4477......... probably best to leave it as is since you have a will. Two things:

1) Any transfer from you to your son would involve drafting a deed, recording, etc. which may trigger the due on sale clause in your mortgage and, regardless, would involve the services of an attorney (so figure $1k as a floor, which is not worth it at these values).

2) With respect to your loss, I can only assume it is likely very, very small considering your son covers all of the expenses and the annual depreciation deduction is rather low (based on $90k, approximately $3272/yr). At those rates, the IRS is not likely to scrutinize your return, particularly since your "small loss" would be a passive loss.