The plan sounds clean. Put the house in your kid’s name, write $1 on the deed, skip the tax, done before dinner. It comes up constantly, and the first thing worth knowing is that the $1 buys you nothing at all.
Massachusetts already exempts a genuine gift from the deeds excise. The Department of Revenue said so directly. The excise does not apply to bona fide gifts, even when the deed recites a nominal sum. So if you were going to give your child the house, you could simply give it. Writing $1 doesn’t unlock the exemption. What it does do is make a clerk stop and ask questions, because the registry needs a real number to compute the tax on, and the state’s own recording standards warn that a deed reciting $1 may be delayed while they inquire.
The delay is the small problem. The expensive problems are underneath it, and this guide walks through all of them, because most of what people believe about this plan is wrong in ways that cost real money. We’re a mortgage broker in Beverly, so we see these deals from the financing side, which is usually where they come apart.
The Mortgage Is What Decides Whether You Owe the Tax
Here’s the part almost nobody gets right, and it turns on something your family controls.
If the house is paid off and you gift it, there’s no excise. If there’s still a mortgage and your child formally assumes it, or takes the house subject to it, the assumed balance comes out of the calculation before the tax is figured. That’s the DOR’s own rule, and the registries apply it.
But conventional mortgages today are almost never assumable. So in practice your child takes out a new loan to pay off your balance. And a new mortgage is not a lien remaining on the property, it’s an encumbrance created at the moment of conveyance, which means it can’t be deducted and the excise is owed on the full amount. At $2.28 per $500, a $300,000 payoff costs about $1,368.
What to do with that. Before anyone drafts anything, find out whether the existing loan is assumable. Call the servicer and ask directly whether the loan permits assumption by a family member and what they require. It’s a five minute call that decides a four figure question, and it’s the one call nobody makes.
Your Lender May Be Allowed to Call the Loan
The comfortable belief is that the bank can’t touch a transfer to your own child. Federal law does protect that transfer from a due-on-sale clause, and children are named in the statute, so this one is half right.
The catch lives in the regulation rather than the statute. The protection applies where the person receiving the property occupies it or will occupy it. That single condition removes the most common version of this plan from the safe harbor, the one where you deed the house to your child and keep living in it yourself. Same for deeding it to a child who is going to rent it out.
One more thing surprises people even when the transfer is protected. Not being able to accelerate the loan is not the same as letting you off it. You stay on the note until the lender signs a written release. Your child owns a house you’re still legally responsible for.
The Tax Bill You’re Building for Your Child
Here lies the most expensive misunderstanding in the whole subject, and it works in two directions at once.
When you give property away, your child inherits your cost basis rather than the home’s current value. Say you bought in 1988 for $80,000 and the house is worth $700,000 today. Give it away and your child’s basis is $80,000. If they sell at $700,000, they have $620,000 of gain to reckon with. Had they inherited the same house, the basis would have reset to $700,000 at your death and the gain would have been roughly nothing.
People assume the home sale exclusion cleans this up. It only partly does, and only if your child lived there two of the previous five years. Even then it caps out, so a single adult child could still be looking at hundreds of thousands in taxable gain.
Now the second direction, which is the one sellers never see coming. In a $1 transfer you realize $1, so you have no gain, so there is nothing for your own home sale exclusion to shelter. That exclusion is worth up to $500,000 of tax free gain on a joint return, it doesn’t carry forward, and it can’t be handed to your child. You simply forfeit it. On an appreciated Massachusetts house, that single line is usually the largest number in the entire transaction, and it never appears on anybody’s list of costs.
What About Protecting the House From Nursing Home Costs?
Nursing home costs are the real reason behind most of these conversations, so the question deserves a straight answer rather than a brush off.
MassHealth looks back five years. A transfer of the home for less than fair market value inside that window is a disqualifying transfer to the extent of what wasn’t paid for, and it can delay coverage at exactly the moment a family needs it. There are exceptions written into the rules, including ones for certain caretaker children and for a spouse, and they’re worth asking an elder law attorney about rather than guessing at.
What most families don’t know is that the ground shifted in their favor recently. Massachusetts narrowed estate recovery in 2024, and MassHealth now pursues recovery only from the probate estate, which is a much smaller target than it used to be. Some of the panic that drives $1 deeds was aimed at a version of this rule that no longer exists.
Ask this before you transfer anything: is the house even likely to be reachable, given how it’s currently titled and what recovery now covers? That question comes before any deed, and answering it wrong in the cautious direction costs your family the step-up for nothing.
The Move Most Families Really Want
Once you take away the parts that don’t work, what’s usually left is a life estate, where you deed the remainder interest to your child and keep the legal right to live in the home for the rest of your life.
It does the things people wanted from the $1 deed. Because you kept a life interest, the house is counted in your estate at death, and that’s precisely what restores the step-up in basis your child would otherwise lose. The remainder is already theirs, so nothing passes through probate. And since recovery now reaches only the probate estate, it sits outside that too.
The life estate carries costs of its own. Creating one is a transfer of the remainder interest, so the five year clock starts running on that piece. If the deed is written to let you sell the whole property, the rules treat the arrangement as a trust instead, which changes everything. And the same estate inclusion that buys the step-up also uses up part of the Massachusetts estate tax threshold, which is $2 million. On a $700,000 house that’s academic. On a larger estate it isn’t.
A life estate deed is genuinely a planner’s document, not a form to download. What we can tell you is which version of it a lender will still finance around, which matters if there’s a mortgage on the house or if your child will ever want one.
A Gifted House Can Cost Your Child a Mortgage Program
Handing your child a house can disqualify them from first time buyer financing they were counting on for a different purchase. MassHousing’s first time buyer definition looks at whether they’ve had an ownership interest in a principal residence in the last three years, so a child who moves into the gifted house loses that status.
The trap is that avoiding occupancy doesn’t necessarily save them. MassHousing’s broader borrower rules ask that they not hold an ownership interest in any other property at all. So a gifted house they never live in can still close the door. If your child has a first home of their own in mind, sequence matters, and that is worth a conversation before the deed rather than after.
Where We Fit
GoldCoast Mortgage Service is an independent mortgage broker in Beverly, and John Donlon, who owns the company, has spent more than 25 years on North Shore family transactions, including plenty that never touched the open market. We’re not your tax preparer and we’re not an elder law attorney, and this article is not a substitute for either.
What we can do is run the financing side before your family commits to a structure: whether the current loan can be assumed, what a new loan would cost and whether it triggers the excise, and whether the shape you’re considering leaves your child financeable afterward. We’ll pre-qualify at no cost, and if a sale at fair market value serves your family better than a gift, you’ll hear that from us.
We’ve also written about buying your parents’ house while they’re living in it, buying a family member’s house that’s paid off, and the Massachusetts Homestead Act, which matters here because a deed to an adult child ends the homestead protection you have now.
Questions Families Ask
So is the $1 deed ever the right move?
Rarely, and almost never for the reason people want it. If your intention is a pure gift of a paid off house and you’ve already worked through the basis and MassHealth questions with the right professionals, the transfer can make sense. The $1 itself still adds nothing. Recite what is truly happening and let the gift exemption do its job.
Can we just say the house sold for fair market value and not exchange money?
No. The deed’s recitation is a statement of what took place, and the excise is computed from it. Papering a transaction to look like something it wasn’t creates a much bigger problem than the tax you were trying to avoid.
What if I want my child to have the house but I still owe on it?
That’s the most common version, and it’s a financing question before it’s a deed question. Either your child qualifies for a loan large enough to pay off your balance, or the loan is assumable, or the transfer stalls. Start there and the rest of the structure follows.
Does my child owe income tax on a gifted house?
Not on receiving it. Gifts aren’t income to the person receiving them. The tax arrives later, when they sell, because of the basis they inherited from you. That’s the cost worth planning around.
Do I have to file a gift tax return?
Probably, and it’s usually paperwork rather than a bill. Anything above the annual exclusion of $19,000 per person per year goes on a federal gift tax return and counts against a lifetime exemption of $15 million. Almost nobody ends up owing gift tax. Your tax preparer files it and life goes on.