What Are the Tax Consequences of Gifting a House to Your Child in California?

Mary thought she was doing the right thing. Her home in Santa Clarita had been in the family for decades, and she wanted her daughter to have it—without probate court delays or attorney fees. So, she transferred the title.

But what she didn’t realize was that the gift would trigger a full property tax reassessment, adding nearly $8,000 a year to her daughter’s bills. And when her daughter tried to sell the house two years later, she owed a steep capital gains tax bill based on Mary’s original purchase price from 1989. The decision Mary thought would protect her family ended up costing more than she imagined.

If you’re asking what are the tax consequences of gifting a house in California, Mary’s story highlights why that question matters. Gifting your house to your child might seem like a shortcut to peace of mind, but it can lead to unintended tax burdens, legal exposure, and family conflict. Here’s what to consider before you move forward.

What You Give Up: Control, Exemptions, and Legal Protection

When you gift a house during your lifetime, you’re giving up more than just title. You lose the ability to sell, refinance, or reclaim the home if circumstances change. Your child becomes the legal owner and can make decisions about the property without your consent, even renting it out or moving away.

You also give up the chance to pass the home through your estate in a way that preserves favorable tax treatment. It’s a permanent decision that removes your control over what’s likely your most valuable asset. Many parents don’t realize this until it’s too late.

What You Might Pay: Property Tax Reassessment

California’s Proposition 13 keeps property taxes low by capping annual increases based on the home’s purchase price. But those protections often disappear when a home is gifted. Under Proposition 19, parent-to-child transfers are only excluded from reassessment if the home is your primary residence, your child moves in within one year, and the market value increase is less than $1 million above the assessed value.

If any of these conditions aren’t met, the home is reassessed at current market value, which can add thousands in annual property taxes. You can find more details at https://www.boe.ca.gov/prop19. A gift made with the best intentions could end up saddling your child with unexpected costs and resentment you never meant to cause.

What Your Child Could Owe: Capital Gains Tax

When you give your child your home, they also receive your original cost basis. This is the amount you paid when you bought the property. If your child later sells the home, they may owe capital gains tax on the difference between that original basis and the sale price, even if the home was gifted to them.

If the home is inherited instead, the basis is stepped up to the fair market value at the time of your death. This often eliminates or reduces capital gains. It’s one of the most common tax traps families face, and one that careful CA estate planning can help you avoid.

What You Risk: Creditors, Divorce, and Family Conflict

Once your child owns the house, it becomes their asset. That means it’s vulnerable to:

• Divorce proceedings: The house could be divided as marital property
• Debt collection: Creditors could place liens on the home
• Bankruptcy: The house may be seized and sold to pay off debts
• Sibling conflict: If other children feel slighted, it can trigger long-term damage to family relationships

We’ve seen situations where a child lost the gifted home due to an unrelated lawsuit or ended up in court with siblings who believed the gift was unfair. These are real consequences that gifting can unintentionally cause.

What About Medi-Cal Eligibility?

Some parents hope that gifting their home will protect it if they ever need long-term care, but in California, relying on outdated advice could backfire.

If you gifted your house before January 1, 2024, and apply for Medi-Cal long-term care (such as nursing home coverage) in mid-2025, Medi-Cal may still review transfers made within a shrinking lookback period. That period shortens by one month each month until it fully expires on July 1, 2026. A gift made during that timeframe could trigger a penalty period of ineligibility based on the home’s value.

For gifts made on or after January 1, 2024, no lookback currently applies due to the temporary elimination of Medi-Cal’s asset limit, but that could change if the asset test is reinstated in 2026 or later. Separately, even if you qualify for benefits, Medi-Cal may attempt to recover the home’s value from your estate after death, especially if you received benefits after age 55.

If you’re planning ahead for long-term care or trying to preserve your home, gifting it outright could still create risk. Irrevocable trusts or life estate deeds may offer more reliable protection, but only when structured correctly based on the most current law.

Better Alternatives: Trusts, Life Estates, and Planning

If you want your child to inherit your home without the risks of gifting, there are safer ways to do it:

Revocable Living Trust

• Keeps the home in your control during your lifetime
• Transfers the property outside of probate
• Allows for a step-up in basis at death
• Maintains Prop 13 tax base, if Prop 19 conditions are met

Life Estate Deed

• You retain the right to live in the home for life
• Automatically transfers the property to your child when you pass
• Still exposes the home to capital gains and Medi-Cal lookback if not timed properly

Irrevocable Trust

• Removes the asset from your estate entirely
• Can protect the home from Medi-Cal recovery
• You give up control, but may gain asset protection

Each option has tradeoffs. The right one depends on your health, your financial picture, and your relationship with your child.

Why Gifting Your Home Feels Safer Than It Is

It’s easy to assume that handing over the title will make things easier for your family. But we often hear clients say things like:

“It worked fine for my parents—I don’t see the harm.”

Laws have changed, especially with Proposition 19. What worked 20 years ago can now create steep tax consequences or eligibility issues.

“I don’t need a full estate plan. I just want to keep it simple.”

Gifting might feel simple, but it’s legally complex. A misstep today could leave your child with thousands in tax liability later.

“I already added my child to the deed, so I’m covered.”

Joint ownership doesn’t avoid probate and may cause capital gains problems down the road. Plus, you now share control over the property.

“If I need to change things later, I’ll just fix it then.”

Once you gift the house, it’s no longer yours. You can’t undo the transfer without your child’s full cooperation and legal complications.

Don’t Let a Well-Meaning Gift Turn Into a Financial Mistake

Gifting your home to your child may feel like the simplest way to protect them, but it could expose them to tax bills, reassessments, and legal risks they’re not prepared to handle. You don’t have to figure it out alone, and you don’t have to risk getting it wrong.

At Talai Law Offices, California estate planning lawyer Ali Talai, Esq., LL.M., applies a comprehensive understanding of California property law, estate tax rules, and family wealth transfer strategies to every estate plan he builds. Whether you’re thinking about gifting your house to your child now or leaving it to them in the future, he’ll walk you through the best legal options to protect your family, avoid unnecessary taxes, and keep control over what matters most.

With flat-fee options and clear communication, we make the process feel less overwhelming and more empowering. Call (818) 285-2850(818) 285-2850 or use our confidential online form today to schedule a consultation with a California estate planning attorney.

At Talai Law Offices – we’re your attorney for life.

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The information in this blog post (“post”) is provided for general informational purposes only and may not reflect the current law in your jurisdiction. No information in this post should be construed as legal advice from the individual author or the law firm, nor is it intended to be a substitute for legal counsel on any subject matter. No reader of this post should act or refrain from acting based on any information included in or accessible through this post without seeking the appropriate legal or other professional advice on the particular facts and circumstances at issue from a lawyer licensed in the recipient’s state, country, or other appropriate licensing jurisdiction.

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Woodland Hills, CA 91367
(818) 285-2850(818) 285-2850
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