What is the best way to transfer property to a child in Pennsylvania?

For most families with an appreciated home, leaving it through your estate (by will or trust) is best, because your child inherits with a stepped-up basis that can eliminate capital gains tax. Gifting the home during your life avoids the 4.5% inheritance tax but usually costs far more in capital gains. The right method depends on your goals around control, taxes, and Medicaid — there is no one answer.

Is there a transfer tax when I give property to my child in Pennsylvania?

No. Transfers of real estate between parents and children are exempt from Pennsylvania's realty transfer tax. That exemption applies regardless of which method you use, so transfer tax is rarely the deciding factor.

Should I just add my child to my deed?

Usually not. Adding a child to your deed is a partial gift that carries your original cost basis (creating a future capital gains bill on that share), exposes your home to the child's creditors and divorce, and can complicate Medicaid. There are almost always better-structured options.

How do I avoid capital gains when transferring property to my child?

The key is preserving the 'stepped-up basis,' which happens when property passes at death rather than by lifetime gift. Leaving the property through your estate, a revocable trust, or a life estate deed generally preserves the step-up; an outright lifetime gift does not.

Transferring Property to a Child in Pennsylvania: 5 Ways, Compared

"How do I get my house to my kids?" is one of the most common questions we hear — and the honest answer is that there are several ways to do it, each with very different consequences. The wrong choice can cost your family tens of thousands of dollars in avoidable tax. Here are the five main paths in Pennsylvania and how they compare.

Good news first: in Pennsylvania, transfers between parents and children are exempt from realty transfer tax no matter which method you choose — so transfer tax is rarely the deciding factor. The real differences show up in inheritance tax, capital gains, control, and Medicaid.

The Four Dimensions That Matter

Every method below is really a set of trade-offs across four questions:

Capital gains — does your child get a stepped-up basis (property passing at death) or your old carryover basis (a lifetime gift)? This is often the biggest dollar difference. See gifting a home and capital gains.
PA inheritance tax — property passing to a child is taxed at 4.5%; a completed gift more than a year before death can avoid it.
Control — do you keep the ability to sell, refinance, or change your mind?
Medicaid — does the transfer start the five-year lookback clock?

The Five Ways, Compared

1. Gift it outright now. Simple, and it can avoid the 4.5% inheritance tax if done more than a year before death. But your child takes your low basis — often a large capital gains bill when they sell — you lose all control, and it starts the Medicaid lookback. Rarely the best move for an appreciated home.

2. Sell it to your child. A real sale at fair value avoids gift/Medicaid-transfer issues, but the child pays market price, you may owe capital gains (beyond your $250k/$500k residence exclusion), and it doesn't help most families' goals.

3. Life estate deed. You keep the right to live there for life; the home passes to your child at death outside probate and with a stepped-up basis. The trade-off: it's an irrevocable gift of the remainder, so you can't sell or refinance alone, and it starts the Medicaid clock. See life estate deeds.

4. Revocable living trust. You keep full control and can change your mind anytime; at death the home passes without probate and with the step-up. The most flexible option for most families — it just costs a bit more to set up.

5. Leave it in your will. The home goes through probate and your child pays the 4.5% inheritance tax — but they receive the full stepped-up basis, which usually saves far more than the inheritance tax costs. Simple and often tax-smart.

So Which Is Right?

For most families with an appreciated home, the capital gains step-up is the dominant factor — which means letting the home pass at death (through a will, a trust, or a life estate deed) usually beats gifting it during life. Gifting tends to make sense mainly in Medicaid planning, where getting the asset out of your name (five years ahead) is the goal.

And whatever you do, resist the tempting shortcut of simply adding your child to the deed — it combines the worst of several worlds: a partial capital-gains problem, exposure to your child's creditors and divorce, and Medicaid complications. See Should You Put Your Kids on the Deed?

Get It Right for Your Family

The best method depends on your home's basis, your health and Medicaid timeline, and how much control you want to keep. At Ament Law Group, we help Western Pennsylvania families weigh all of it and choose the path that leaves the most to the people they love. Call (724) 733-3500 or schedule a free consultation.

Related reading:

John W. Ament, Esq.

John W. Ament is a partner and co-founder of Ament Law Group, P.C. in Murrysville, PA. He holds a J.D./M.B.A. from Duquesne University and is a member of the National Academy of Elder Law Attorneys (NAELA), PAELA, and the Pittsburgh Estate Planning Council.

Ready to Protect Your Family?

Estate plans age. Laws change. Whether you need a new plan or a review of what you have, our attorneys help Western PA families get it right — with transparent pricing and a free initial consultation.

Call (724) 733-3500 or schedule a free consultation.