She’ll Put Her Son on the Deed and Keep Living in the House. Everyone Will Tell Her That Costs Him Half the Step-Up. It Won’t, Because She Paid for Every Dollar of It

Her friends all give her the same advice: put your son on the deed, keep living there, and the house skips probate. Then someone who read a blog post warns her that adding him will cost him half the step-up in basis when she dies. If the deed creates joint tenancy with right of survivorship and she paid for the entire house, her son generally receives a full step-up when she dies. On the other hand, the friends’ advice carries separate risks.

A step-up in basis means that when you inherit property, your tax cost resets to the property’s value on the owner’s date of death. All the gain from the years she owned it goes untaxed. National home prices stood at a Case-Shiller index reading of 337.3 in July 2026, on a scale where Jan 2000 = 100, so for a long-held home that reset can be worth a lot.

Why Her Son Keeps the Full Step-Up

The rule is 26 U.S. Code §2040(a). When people who aren’t married to each other own property as joint tenants with right of survivorship, the deceased’s estate includes the full value “except such part thereof as may be shown to have originally belonged to such other person.” The Treasury regulation states that if the decedent “furnished the entire purchase price of the jointly held property, the value of the entire property is included in his gross estate.”

Then §1014(b)(9) gives a stepped-up basis to property includible in the decedent’s gross estate. If the whole house is in her estate, the whole house gets the step-up. The half-step-up rule people remember applies to other situations: married couples, who are taxed on one-half automatically under §2040(b), and co-owners where the survivor helped pay for the property.

Proving She Paid Could Take Records From Decades Ago

The regulation defaults to full inclusion, but when her son sells and claims a full step-up, he must back up his basis. If the IRS asks, the family needs the closing statement, the mortgage payment history, and bank records showing her money paid for everything, possibly 20 or 30 years later. If those records are gone, the family is counting on a treatment it may not be able to prove.

Putting Him on the Deed Counts as a Gift

Giving him a share of the house is a gift. The 2026 annual gift exclusion remains at $19,000, and a share of a house almost always exceeds it. That means filing Form 709, due April 15 after the year the gift was made. Most families won’t owe any tax, because the 2026 basic exclusion amount is $15,000,000, up from $13,990,000 in 2025 under the One, Big, Beautiful Bill. The filing requirement still applies.

Five Ways the Deed Can Backfire

• His problems reach the house. A lawsuit judgment, a divorce, or a bankruptcy can attach to his share, and in some states a creditor can ask a court to force a sale.
• She gives up sole control. She can’t sell or refinance her own home unless he signs.
• Medicaid counts it as a transfer. Giving away part of the house for nothing can trigger a penalty period under the 60-month look-back, which we’ve covered in detail. The state values his share differently, and the penalty tends to hit right when she needs nursing home care.
• He could die first. If he survives, his share goes back to her, and the plan fails. Under a tenancy in common, his share passes through his own estate, possibly to his spouse.
• Selling during her life costs more in tax. She can exclude up to $250,000 of gain if she owned the home and lived in it for at least 24 months (2 years) out of the last 5 years. He doesn’t live there, so his share doesn’t qualify, and as a gift recipient, he takes over her original cost basis, which the IRS figures from its adjusted basis to the donor just before it was given.

Better Ways to Get the Same Result

She usually wants to avoid probate or make sure one child ends up with the house. Several tools do that without any of the risks above (we put the full checklist, beneficiary forms, and titling included, in a free estate guide here).

• Transfer-on-death (beneficiary) deed: Only available where state law allows it. Maryland’s version takes effect October 1, 2026. It avoids probate, leaves her in full control, keeps the full step-up, and isn’t a gift while she’s alive. How Medicaid estate recovery handles it varies by state.
• Revocable living trust: Skips probate and keeps her in control. The house stays in her estate, so the step-up remains. Medicaid handles trust assets as still hers, so it offers no Medicaid protection.
• Enhanced life estate (Lady Bird) deed: Recognized in Florida, Texas, Michigan, Vermont, and West Virginia. She keeps the power to sell or cancel, the step-up remains, and Medicaid generally doesn’t treat it as a disqualifying gift. A traditional life estate deed takes away her control and starts the look-back period.

Question to Ask Before She Signs Anything

This requires an estate planning attorney licensed in her state, since deed types, creditor rules, and Medicaid treatment vary by state. Her question to the attorney should be: “What does adding my son to the deed do for me that a transfer-on-death deed or a revocable trust here wouldn’t, and what does it expose my house to?” If the answer is “nothing” for the first part and “a lot” for the second, the full step-up is beside the point.

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