MW 'I would like to give her a head start in life': My house rose in value by $500K. Do I gift it to my daughter at a bargain price?
By Quentin Fottrell
'I would sell it to her for enough to allow me to pay cash for a much smaller condo'
"My mortgage, which I could pay off, is 3.25%. I don't know if we'll see those rates again for a long time." (Photo subject is a model.)
Dear Quentin,
Am I allowed to sell my house to my daughter way below market rate? It's paid off and I would like to give her a head start in life. I would sell it to her for enough to allow me to pay cash for a much smaller condo. It might be good to just have her make the payments. The house has appreciated about $500,000 since I bought it and my mortgage, which I could pay off, is 3.25%. I don't know if we'll see those rates again for a long time.
The Mother
Related: 'A friend calls it the everything bubble': Why do so many economists fear a 1929-style crash?
You can email The Moneyist with any financial and ethical questions at qfottrell@marketwatch.com. The Moneyist regrets he cannot reply to questions individually.
I don't recommend selling this to your daughter at a bargain-basement price.
Dear Mother,
You are allowed to do whatever you want when it comes to your real estate. Whether it's a good or bad idea is another question.
In this case, given how much your home has appreciated over the years, I don't recommend selling this to your daughter at a bargain-basement price. You would have to file a Form 709 to declare the difference in the sale price and the fair market value as a gift. Any rental payments should be documented. The federal estate and gift-tax exemption for 2026 is $15 million per person. For married couples, it's $30 million. (In 2026, you can also gift $19,000 a year without having to declare it to the Internal Revenue Service; it's double that for married couples.)
If you sell this house, she'd lose her step-up in basis. If she sold the house for $1 million, assuming for simplicity, regardless of whether she used it as her primary residence, her capital gains would be based on the price you paid (let's say, $500,000). Your daughter would get a $250,000 (or $500,000 for married couples) exclusion on any capital gains if she owned and used the house for two of the previous five years. But if the house went up another $250,000 before she sold it, she'd still be on the hook for that remaining $500,000 increase in value.
Let's look at another scenario: Your daughter inherits the $1 million home at the time of your death. If you list your daughter on a transfer-on-death or beneficiary deed, it would go to her immediately and thereby means the property would not pass through probate, which can be lengthy, public and time-consuming. The cost basis would be the value at the time of your death ($1 million), so if she sold it a few years later for $1.25 million, she would owe no capital gains on that sale. In other words, it makes more sense to ask her to contribute to the mortgage in lieu of that day.
Other issues like Medicaid
Are you concerned about Medicaid? Every state sets a home-equity interest limit to determine if a person's home will be counted toward the Medicaid asset limit. Florida, New York and California, among others, exempt a primary residence from assets calculated by Medicaid under certain circumstances. In many states, if a person or their spouse needs to live in the home or has plans to return to it, it can remain exempt. There is a five-year Medicaid look-back period to review whether an individual divested themselves of assets in order to qualify for benefits.
"Countable assets are calculated towards Medicaid's asset limit," says the American Council on Aging. "This includes cash, stocks, bonds, investments, vacation homes and bank accounts (i.e., checking, savings, money market). There are also exempt (non-countable) assets." Medicaid estate recovery rules are very complex. The council adds: "Exemptions generally include one's primary home, personal belongings, household items, a vehicle, burial funds up to $1,500 or a life-insurance policy with a cash value up to $1,500."
You're right about one thing: A 3.25% mortgage rate is a gift, given that the rate is still clinging to 6.3% or thereabouts, and how 5% is a "normal" or more acceptable mortgage rate that many economists say would help to lure more buyers back into the housing market. Assuming your investments are at least getting a 7% annual return, they are comfortably outpacing your mortgage rate. In fact, your investments are probably doing a lot better lately, given that the S&P 500 (SPX) is up around 16% so far this year and the Dow Jones Industrial Average $(DJIA)$ is up 10%.
To retain a step-up in basis, the house needs to be part of your taxable estate - so a will, transfer-on-death deed or revocable trust is the way to go.
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Previous columns by Quentin Fottrell:
'I'm furloughed due to the government shutdown': Do I pull money from my Roth 401(k) or $450K home?
'I'm in California and plan to stay here': I'm 61, lost my job and live off my $425K IRA. My house has $650K in equity. Do I sell?
My son's credit-card company will write off $10K on a $25K debt. Should he accept or declare bankruptcy?
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-Quentin Fottrell
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December 22, 2025 04:23 ET (09:23 GMT)
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