The tax implications for transferring a home in California from parent to children while the parent is still alive is something families should consider and consult with a CPA or tax attorney. From my research, you are entitled to a total of $1 million of non-exempt lifetime gift before you pass away. However, as the person giving up ownership of the home, you still need to file a gift tax return with the IRS even if you do not go over the $1 million. The value of the gift is subtracted from the max federal estate tax exemption of $2 million.

A drawback of receiving the home as a gift rather than inheriting the home is that you lose the stepped up basis of the home’s value.  For example, if the home was purchased by the parent at $100,000 and is now worth $400,000. The cost basis of the home would still be $100,000. We will exclude deprecation and other related activities that may affect the cost basis for this example. That means if the children sells the home at a later date for $500,000, taxes will need to be paid on $400,000 ($500,000 minus $100,000). Had the home been inherited, the stepped basis would be the value of the home at the time of death, which in this example is $400,000. So taxes would only have to be paid on $100,000. ($500,000 - $400,000)

Also, you straight out lose control of your home which could be troublesome if you and your children no longer get along. Once you deed the title over, your children or whomever the title was deeded legally owns the home.

Disclaimer: I am not a tax expert or professional. Please do your own research and consult with a professional.

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