Buying a house for your child is legal at any age, but the structure you choose — who holds title, how the purchase is financed, and whether money changes hands as a gift or a loan — decides how much you pay in taxes, what interest rate applies, and how exposed the property is to your child’s future creditors, divorce, or your own long-term care costs. For 2026, you can give any one person up to $19,000 without filing gift tax paperwork, and the lifetime gift and estate tax exemption is $15 million per individual. Get the structure right before closing; changing it afterward is expensive or impossible.
Who Should Hold Title
Title decides who can sell, who can deduct, who bears liability, and what happens if your child divorces or defaults on other debts. There is no single best answer.
Title in Your Child’s Name Only
Putting the deed entirely in your child’s name gives them complete control from day one. They can sell, refinance, or borrow against the home without asking you. The trade-off is exposure: in a divorce, a court can treat the home as a marital asset. If your child runs up debt, creditors can lien the property. Once the deed is signed, you have no legal path to take it back.
Joint Tenancy or Tenancy in Common
Joint tenancy with right of survivorship means the surviving co-owner automatically takes full ownership when the other dies, bypassing probate.1LII / Legal Information Institute. Right of Survivorship Tenancy in common lets each owner hold a defined percentage share that passes through a will rather than to the co-owner. Both forms have a downside worth knowing: your child’s share is still exposed to their personal creditors, and either co-owner can force a sale of the whole property through a partition action.
A Trust
A revocable trust lets you keep control and change terms whenever you want. An irrevocable trust pulls the home out of your taxable estate but locks the arrangement in place. If your child is a minor, a trust is effectively required, because minors cannot hold real estate title in their own names. The trust names a trustee to manage the property until your child reaches whatever age you specify. Legal fees vary widely by complexity and location, and irrevocable trusts cost more because the tax planning is harder to unwind.
How to Pay for It
Funding shapes the mortgage terms, the tax reporting, and whether the deal triggers gift tax at all.
Paying Cash
Wiring the full purchase price to the closing agent eliminates lender requirements and interest costs. If the home is a gift to your child, the entire purchase price is a reportable gift. Simple to execute, but the gift tax planning needs to happen before you send funds, not after.
Gifting the Down Payment
A more common approach: you gift enough to cover the down payment and your child takes out the mortgage. Lenders require a formal gift letter confirming the money is a gift, not a loan. They also want bank statements showing where the funds came from. Most lenders treat funds as “seasoned” once they have sat in the account for at least 60 days before the mortgage application, which reduces the paperwork.
Co-Signing
When you co-sign, both incomes and both credit scores qualify the loan, and you are equally liable for every payment. A guarantor arrangement is narrower: you step in only if your child defaults. Either way, the mortgage shows on your credit report and counts against your debt-to-income ratio, which can limit your own future borrowing.
Making an Intra-Family Loan
Some parents prefer to lend rather than gift, either to preserve their lifetime exemption or to be repaid. The IRS allows this, but requires the loan to charge at least the Applicable Federal Rate, which the IRS publishes monthly for short-, mid-, and long-term loans.2Internal Revenue Service. Applicable Federal Rates Rulings If you charge less, the IRS treats the shortfall between the AFR and what you actually charged as a gift, and treats the forgone interest as if your child paid it back to you, so you owe income tax on interest you never received.3Office of the Law Revision Counsel. 26 USC 7872 – Treatment of Loans With Below-Market Interest Rates
Two exceptions apply to smaller loans:
- Loans of $10,000 or less: the imputed interest rules do not apply, so a zero-interest loan is fine.3Office of the Law Revision Counsel. 26 USC 7872 – Treatment of Loans With Below-Market Interest Rates
- Loans of $100,000 or less: the imputed interest is capped at your child’s net investment income for the year. If they have little or no investment income, the tax hit is minimal. This exception falls away if tax avoidance is a principal purpose of the loan.
Whichever route you take, have your child sign a written promissory note with the amount, interest rate, repayment schedule, and default terms. Without documentation, the IRS is far more likely to reclassify the transaction as a gift. If you later forgive the remaining balance, cancellation-of-debt income does not apply because canceled debt treated as a gift is specifically excluded from that rule.4Internal Revenue Service. Topic No. 431, Canceled Debt — Is It Taxable or Not The forgiven amount becomes a gift instead, and Form 709 is required if it exceeds $19,000 in the year of forgiveness.
The Mortgage Occupancy Trap
This is where parents most often stumble. If you take out a mortgage on a home your child will live in and you will not, the lender classifies the property as an investment or second home rather than a primary residence. The cost difference is real.
Under Fannie Mae guidelines, a single-unit primary residence purchase can require as little as 3% down; a single-unit investment property requires at least 15% down.5Fannie Mae. Eligibility Matrix Interest rates on investment property loans run roughly 0.25% to 0.875% higher than primary residence rates. Over 30 years, that spread adds thousands of dollars in interest.
Fannie Mae allows one narrow exception: a parent can qualify for primary residence terms when buying a home for a disabled or handicapped adult child who cannot qualify for a mortgage on their own.6Fannie Mae. Occupancy Types Outside that exception, claiming the home as your primary residence when your child is the one living there is occupancy fraud. Signing a false occupancy certification on a mortgage application is a federal felony, and even where prosecution is rare, a lender that discovers the misrepresentation can call the full loan balance due immediately.
If your child qualifies for a mortgage on their own income and credit, having them apply as primary borrower and owner-occupant is the cleanest way to get primary residence rates. You can still help by gifting the down payment or co-signing.
Gift Tax Reporting for 2026
For 2026, you can give up to $19,000 per recipient without filing anything.7Internal Revenue Service. Whats New — Estate and Gift Tax The statutory exclusion is indexed to inflation and adjusts in $1,000 increments.8Office of the Law Revision Counsel. 26 USC 2503 – Taxable Gifts
Married parents can double it. Under gift-splitting, each spouse is treated as making half of any gift, so a married couple can transfer up to $38,000 to one child in a single year with no reporting obligation.9Office of the Law Revision Counsel. 26 US Code 2513 – Gift by Husband or Wife to Third Party Both spouses must consent on the gift tax return.
When a gift exceeds the annual exclusion, the donor files IRS Form 709 by April 15 of the following year.10Internal Revenue Service. Instructions for Form 709 Filing does not mean you owe tax. The excess reduces your lifetime gift and estate tax exemption, which for 2026 is $15 million per individual.11Office of the Law Revision Counsel. 26 USC 2010 – Unified Credit Against Estate Tax That figure will adjust for inflation in calendar years after 2026.7Internal Revenue Service. Whats New — Estate and Gift Tax Most parents will never exhaust the exemption, but the reporting requirement applies regardless of whether tax is owed, and the IRS uses Form 709 to track cumulative lifetime transfers against your exemption. Unreported gifts can trigger penalties and interest if the IRS finds them in an audit.
Gifting Now vs. Inheriting Later: The Basis Question
The single most expensive mistake in this area is failing to compare a lifetime gift with an inheritance. The difference can easily reach six figures on an appreciated property.
If you gift the home during your lifetime, your child inherits your original cost basis. You bought it for $200,000, you gift it when it is worth $500,000, your child’s basis is still $200,000. When they sell, they owe capital gains tax on the difference between the sale price and $200,000.12Office of the Law Revision Counsel. 26 USC 1015 – Basis of Property Acquired by Gifts and Transfers in Trust
If your child inherits at your death, they get a stepped-up basis equal to the home’s fair market value on the date of death. Same numbers: the home is worth $500,000 when you die, the basis resets to $500,000, and your child can sell immediately with zero capital gains. Gifting during your lifetime forfeits that step-up entirely.
One partial offset. If your child lives in the home as their primary residence for at least two of the five years before selling, they can exclude up to $250,000 of capital gains ($500,000 if married filing jointly).13Office of the Law Revision Counsel. 26 USC 121 – Exclusion of Gain From Sale of Principal Residence That helps, but it will not fully close the gap on a property that has appreciated significantly.
Deductions When You Own and Your Child Lives There
If your child owns the home, lives in it, and pays the mortgage, they take the deductions on their own return. The complications arise when a parent owns the home and lets a child live there for free or below market rent.
The IRS treats any day a family member uses a dwelling at less than fair rental price as a day of personal use by the owner.14Internal Revenue Service. Publication 527 – Residential Rental Property If your child lives there year-round rent-free, the property is personal-use for the whole year. You cannot claim rental losses, depreciation, or operating expenses as rental business costs. You can still deduct mortgage interest and property taxes on Schedule A as a second home if you itemize, but the more valuable rental deductions are unavailable unless you charge fair-market rent and treat the arrangement as a genuine landlord-tenant relationship.
Medicaid, Creditor, and Insurance Risks
The Medicaid Look-Back
If you might need Medicaid-funded long-term care within five years, transferring a home to your child can trigger a penalty period that disqualifies you from coverage. Federal law imposes a 60-month look-back: any asset transfer during that window can cause a period of ineligibility based on the value transferred.15Office of the Law Revision Counsel. 42 US Code 1396p – Liens, Adjustments and Recoveries, and Transfers of Assets The gift tax annual exclusion does not protect you. Medicaid applies its own transfer rules regardless of whether a gift was below the IRS threshold.
Narrow exceptions exist for transfers to a child who is under 21, a child who is blind or permanently disabled, or a caretaker child who lived in the home for at least two years before you entered long-term care and provided care that delayed your need for a nursing facility.15Office of the Law Revision Counsel. 42 US Code 1396p – Liens, Adjustments and Recoveries, and Transfers of Assets Outside those exceptions, the transfer can leave you without Medicaid coverage for months or years.
Creditor and Divorce Exposure
Any ownership interest your child holds is exposed to their financial life. In bankruptcy, a lawsuit, or a divorce, the titled share can be reached by creditors or divided by a family court, even if you paid every dollar. Holding the property in a trust provides stronger protection than titling it in your child’s name, though trusts carry their own costs and constraints.
Insurance
When a parent owns a home a child occupies, a standard homeowner’s policy may not apply the way it would for an owner-occupied residence. If you own and do not live there, you generally need a landlord or dwelling fire policy instead. Coverage terms, liability limits, and premiums all differ. Talk to your insurance agent about the living arrangement before closing so the policy actually covers the property.
Paperwork to Have Ready
- A gift letter, whenever a parent provides down payment funds, stating the amount, confirming there is no repayment expected, and identifying the donor and relationship.
- At least 60 days of the donor’s bank statements to document the source of gift funds.
- A signed promissory note for any intra-family loan, with the principal, interest rate at or above the AFR, repayment schedule, and default terms.
- The full trust agreement or a certificate of trust identifying the trustee, if title is held in a trust.
- Government-issued ID for all parties to satisfy federal anti-money-laundering rules.
- Full mortgage application materials for whoever is borrowing: employment history, Social Security number, current debts, all consistent with the supporting bank records and identification.