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  • Dennis C. Carroll, Esq.

Are there benefits to gifting your home before you die?

Updated: Oct 25, 2023



If you own your home on the day of your death, or your life tenancy ends, then before the home can be sold to a third party, your estate must go through probate. The Connecticut probate fee might be based on the value of the entire home; so an estate with only a home worth $500,000 will pay about $1,900 in a probate fee and between $1,500 to $7,500 for a probate attorney. When the estate beneficiaries' inherit the home and then sell the home to a third party, that sale might not add income to the beneficiaries' income tax return that year. The amount of that added income would be the difference between the sale price to the third party and the value of the home on the day of your death. (aka the home value had a step-up in basis when you died). For sales occurring shortly after death, the amount of this added income should be small.


Alternatively, if you gifted your home before your death to your child (usually by way of quit-claim deed), then there'll be no estate issue and no probate fee or probate attorney cost associated with the home. However, if the person that you gift the home to does not live in the home, then when the home is ultimately sold to a third party then that person's added income from the sale could be larger. Instead of the added income being based on the value of the home on the day of your death, it is based on your original purchase price and any major improvements since your purchase. Adding any amount of income to the seller's tax return might increase their income taxes more than the cost of the probate if you had not gifted the home. And although the federal government taxes this added income as long-term capital gains at lower rates than ordinary income (like salaries) most states provide no special treatment for this added income.


Income Tax Comparison:

Own Home At Death

1960 - purchase price = $100,000

1960-2017 - major improvements = $100,000

2023 - value on day of death = $500,000

2023 - sale to 3rd party = $500,000

2023 - long-term capital gains = $0

2023 - CT probate fee = $1,900 + Attorney Fee = ~$3,500


OR


Gift Home Before Death

1960 - purchase price = $100,000

1960-2017 - major improvements = $100,000

2017 - value on day of GIFT to kids = irrelevant

2023 - value on day of death = irrelevant

2023 - sale to 3rd party = $500,000

2023 - long-term capital gains = $300,000

2023 - federal income tax filing as single on LTCG $300k = $40,000

2023 - CT income tax filing as single on LTCG $300k = $19,750


If you must gift your home before your death, then to reduce income tax when the home is sold, your child (or other gift donee) must reside in the home for 2 years prior to the sale of the home to avoid the added income on their tax return (by way of the home sale exclusion.)

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