A New York father sold his house to his daughter for one dollar, put her name on the deed, and thought the estate planning was handled.
Suze Orman, on her Women & Money podcast, told the caller that single signature could trigger a tax bill of $520,000 when the daughter eventually sells
Parents transfer property to adult children to “avoid probate” or “keep it simple.” Orman’s verdict is blunt and correct: the dollar deed is one of the most expensive mistakes families make, and the IRS sees right through it. Quick Read – Transferring property to children via dollar deed triggers carryover basis, forcing heirs to pay capital gains tax on decades of appreciation; a $600,000 house originally purchased for $80,000 could generate a $520,000 tax bill instead of zero through proper planning. – Parents should use revocable living trusts, Lady Bird deeds, or Transfer on Death deeds to avoid probate while preserving the step-up in basis and protecting property from the child’s creditors. – Why the IRS treats a $1 sale as a gift Orman explained the mechanic plainly. “Because he sold it to you for $1, that is going to be deemed as a gift because everybody knows that that was a tool used to get the house in your name and they’ll just void it.” Once the IRS reclassifies the transaction as a gift, a specific tax rule kicks in that destroys the daughter’s tax position. The rule is called carryover basis.
When you receive property as a lifetime gift, you inherit the giver’s original purchase price, called the cost basis. When you eventually sell, capital gains tax is calculated on the difference between the sale price and that old, low number. Inherited property works the opposite way.