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 on $520,000 of appreciation when the daughter eventually sells. The fix is simpler than the mistake, but only if the family acts before the parent dies.
Parents transfer property to adult children to “avoid probate” or “keep it simple.” Orman’s verdict is direct: the dollar deed is one of the most expensive mistakes families make, and the IRS sees right through it.
Why the IRS treats a $1 sale as a gift
Orman explained the mechanic plainly on her podcast. “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.
That rule is carryover basis. When someone receives property as a lifetime gift, the recipient inherits the giver’s original purchase price as their cost basis. When that property is eventually sold, capital gains tax is calculated on the difference between the sale price and that original, low number. The longer the parent held the property before gifting it, the larger the gap and the larger the potential tax.
Inherited property works the opposite way. Assets passed at death receive a stepped-up basis equal to fair market value on the date of death. Sell shortly after, and the taxable gain is close to zero. Congress has considered eliminating the step-up in basis in recent years, but the One Big Beautiful Bill Act signed July 4, 2025 left the rule entirely intact.
The $520,000 difference, in real numbers
Orman used the caller’s situation to illustrate the stakes. Assume the father paid $80,000 for the house decades ago and it is now worth $600,000.
Scenario one: the dollar deed. The daughter inherits her father’s $80,000 cost basis. When she sells for $600,000, she owes capital gains tax on $520,000 of appreciation. Because she never lived in the house as her primary residence, she cannot use the home-sale exclusion. At the 15% federal long-term capital gains rate, that comes to roughly $78,000 in federal tax before state tax and the 3.8% net investment income tax. At 20%, the federal hit exceeds $100,000, and state taxes push the total well into six figures.
Scenario two: the house stays in the father’s name and passes at death. The daughter’s new basis becomes the $600,000 fair market value. She sells for $600,000. Federal capital gains tax owed: zero.
Same house. Same daughter. The only difference is the timing and structure of the transfer.
The second hidden cost: creditor exposure
Tax is only half the problem. Once a child’s name appears on the deed, the house is legally theirs, with all the liability that comes with it. Orman put it directly: “If you are in a car accident or you do something and you get sued and for some reason they take that house away from you, guess what? Your father’s going to be out of a house.”
A lawsuit, divorce settlement, business bankruptcy, or unpaid medical judgment can attach to any property held in the child’s name. The parent who intended to protect their child has handed a creditor a ready target instead.
The right tools, by state
Orman outlined three structures that accomplish the same probate-avoidance goal without the tax damage.
- Revocable living trust. The parent retitles the home into a trust they control during life. At death, the home passes to the beneficiary outside probate with a full step-up in basis. The parent keeps every right they had before, including the right to sell or refinance.
- Lady Bird Deed. Available in five states: Florida, Michigan, Texas, Vermont, and West Virginia. The owner retains full control and the right to sell during life. At death, the property transfers automatically to the named beneficiary with a step-up in basis. No other states currently recognize this instrument.
- Transfer on Death deed. New York enacted this option effective July 19, 2024 under N.Y. Real Property Law Section 424, part of Governor Hochul’s fiscal year 2025 budget. The mechanic is similar to a Lady Bird deed: full ownership control during life, automatic transfer at death, and the step-up in basis preserved for the beneficiary. More than 30 other states already allow some form of TOD deed for real property.
What to do this week
If a parent has already deeded property to a child for a token amount, the situation is usually fixable. Orman’s advice is to have the child deed the property back, then have the parent establish a revocable trust or record a Transfer on Death deed where state law permits. Acting before the parent’s death is the only way to preserve the step-up in basis.
Start by pulling the deed from the county recorder and confirming whose name is on title. Then ask an estate attorney in the parent’s state two specific questions: does this state allow Lady Bird or Transfer on Death deeds, and what is the cleanest way to reverse a completed gift deed without triggering additional transfer tax? That consultation fee is a small fraction of a six-figure capital gains bill.
The cheapest estate planning shortcut a family heard about at a dinner party is often the most expensive document they will ever sign.
Editor’s note: This article was updated to name all five states where Lady Bird deeds are recognized (Florida, Michigan, Texas, Vermont, and West Virginia), to add the specific effective date of New York’s Transfer on Death Deed law (July 19, 2024, under N.Y. Real Property Law Section 424), and to note that the One Big Beautiful Bill Act, signed July 4, 2025, left the federal step-up in basis rule unchanged.
Contact [email protected] for any questions or corrections.
Top Gaining Stocks
Top Losing Stocks