If you help your kids buy a house, do you owe taxes when they sell it later?

Ilyce Glink and Samuel J. Tamkin, Tribune Content Agency on Feb 28, 2025

Q: For three years, our daughter and son-in-law lived in and paid all related expenses for a home we purchased together. They recently sold the home. Could you tell us how we can report this on our federal tax return? If not, can you tell us where we can get more information?

A: As home prices have skyrocketed over the past five years, young buyers are having a harder time affording a home. Parents have stepped in at record levels to help their kids, providing them with extra funds for down payments and living expenses or co-signing mortgages. That has given some lucky millennials and Gen Xers the opportunity to buy their first home.

Back to your question. It’s unclear if you were actual co-owners of the property or if you financially facilitated your children’s purchase of the property. When the home was sold, did you and your kids share in the proceeds from the sale? Did you need to sign paperwork?

If you simply gave (or loaned) them the money to make the purchase, the kids would be the sole owners of the home. If you purchased the home with them, you and your kids would have all been co-owners of the home. Another possibility is if you actually bought the home (with cash, let’s say) and they paid the insurance premium, real estate taxes, and maintenance costs instead of rent. Then, you may have technically been their landlord.

It’s an important point that could have financial repercussions. If we assume you were true co-owners, did you help them with the money they needed to purchase their share of the home? Perhaps you provided cash for their share of the down payment and closing costs.

If we assume that you gave cash to your children in order to fund their share of the purchase, and they gave it back to you out of the sales proceeds, you shouldn’t have any taxes to pay. There are certain rules about gifts and loans that you should be aware of, however. If you gave them more than the allowable annual gift amount, you should have filed a gift tax return.

For example, in 2025 the allowable annual gift limit is $19,000 per person. So, if you give your daughter or son-in-law more than $19,000 each, or $38,000 together, you’d need to file a gift tax return. That does not mean that you or your kids would pay taxes on the gift funds. Rather, it’s a way for the Internal Revenue Service (IRS) to track money transferred between parties. When a person dies with a large estate that’s over the federal or state limit, the estate has to pay the IRS an estate tax. When you give a gift over $19,000 per person during your lifetime, or whatever the annual limit is), the difference will be subtracted from your lifetime exemption, which this year is $13.99 million.

On the other hand, if you gave your kids an interest-free loan, the IRS imputes an interest rate that you should have charged your kids. It gets complicated. If the amount of the interest they would have paid you was less than the allowable gift amount, it really wouldn’t matter. But if it’s more than that, it could result in taxes due from you for that imputed interest.

Having said all that, if you and your kids shared the proceeds from the sale and you made a profit, you’d have to pay taxes to the IRS on that profit. The settlement agent will send you a 1099 that you can use to file your taxes. For more details, read Publication 523, Selling Your Home on the IRS website.

If your children were owners or co-owners of the property and lived in the home as their primary residence for at least two out of the past five years, they are entitled to exclude from federal income taxes up to $500,000 in profits generated by the sale. For more information on the home sale exclusion, you can read more of our columns at thinkglink.com.

Unless you also lived in the house as your primary residence, you’d have to pay taxes on any profit at long term capital gains rates. Depending on your tax bracket, and the amount of the gain, that could be up to 20% of your share of the profits. For more details, consult with your tax advisor, a certified public accountant or an enrolled agent.

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(Ilyce Glink is the author of “100 Questions Every First-Time Home Buyer Should Ask” (4th Edition). She is also the CEO of Best Money Moves, a financial wellness technology company. Samuel J. Tamkin is a Chicago-based real estate attorney. Contact Ilyce and Sam through her website, ThinkGlink.com.)