Add Your Daughter to the Deed With Survivorship Rights and She Still Gets the Full Step-Up When You Die. Sell the House While You’re Alive and Half the Gain Lands on Her Tax Return With No $250,000 Exclusion

A 74-year-old widow bought her house decades ago for $150,000. In 2026 it is worth $650,000. She wants to keep it out of probate, so she signs a new deed that names her daughter as a joint tenant with right of survivorship.

That part works. When she dies, the house passes to her daughter automatically, with no court involved.

Eight months later the stairs become too much, and she sells for $650,000. At tax time the gain gets split in two. Her half is covered by the home-sale exclusion. Her daughter’s half lands on the daughter’s own return, and nothing shelters it.

Survivorship Deeds Keep the Full Step-Up at Death

Two sections of the Internal Revenue Code drive the result at death. Under 26 U.S.C. § 2040(a), the decedent’s gross estate includes all jointly held survivorship property except the share the survivor can show she paid for with her own money. The daughter paid nothing, so the full house counts as her mother’s.

Then 26 U.S.C. § 1014(b)(9) treats property that is included in the gross estate because of its “form of ownership” as acquired from the decedent. Under § 1014(a)(1), that gives it a basis equal to fair market value at the date of death. The daughter’s basis becomes the full $650,000. If she sells soon after the funeral at that price, her taxable gain is zero.

Estate tax doesn’t come into it. Estates of people who die in 2026 have a basic exclusion amount of $15,000,000.

Adding Her Name Created a $325,000 Gift

Treasury treats the deed change as a gift. Under 26 CFR 25.2511-1(h)(5), putting title in your name and someone else’s as joint owners with survivorship rights, when either owner can break up, is a gift of half the property’s value. Here that is $325,000.

The 2026 annual gift exclusion is $19,000, so she must file a Form 709. The other $306,000 uses up part of her lifetime exemption. She owes no gift tax.

A gift also carries the giver’s basis. Under 26 U.S.C. § 1015(a), the daughter takes her mother’s basis in her half, which is $75,000.

A Lifetime Sale Puts $250,000 of Gain on the Daughter’s Return

The 26 U.S.C. § 121(a) exclusion requires that the seller owned the home and used it as a principal residence for at least two of the five years before the sale. For a single filer, § 121(b)(1) caps it at $250,000. Under 26 CFR 1.121-2(a)(2), each joint owner can exclude up to that amount on her own share, but only if she meets the test herself. The daughter lives across town, so she fails the use test.

This assumes the daughter files single, the gain falls in the 15% long-term rate band under 26 U.S.C. § 1(h)(1)(C), and selling costs are left out. It also leaves out the 3.8% net investment income tax under 26 U.S.C. § 1411. The $250,000 gain alone puts the daughter’s modified AGI above the $200,000 single threshold, so at least $50,000 of the gain is subject to it, which adds at least $1,900. State income tax comes on top

If the widow had sold the house in her own name, her total gain of $500,000 minus her exclusion would have left the same $250,000 taxable. The deed change moved the same bill from her return to her daughter’s.

Rising prices raise the stakes: the Case-Shiller national home price index was at 336.7 in August 2026, up 2.1% from a year earlier.

Two Paths Bring the Daughter’s Bill to Zero

Hold the house until death. The full step-up under § 1014(b)(9) wipes out all $500,000 of gain. The daughter’s tax on a quick sale is $0.

Have the daughter move in first. If she owns her half and lives in the house as her principal residence for two of the five years before a sale, her own $250,000 exclusion covers her $250,000 share. Federal tax on the sale falls to $0.

A revocable living trust gets the same step-up under § 1014(b)(2) without a gift and without a Form 709. It also leaves the widow free to sell or refinance without her daughter’s signature.

Steps to Take Before Signing a New Deed

• Find the original closing statement and receipts for any improvements, and write down the home’s basis before anyone’s name changes on the deed.
• Ask the attorney drafting the deed to compare a survivorship deed with a revocable trust or, where state law allows one, a transfer-on-death deed.
• If the deed has already changed, file Form 709 for the year of the gift and keep a copy with the house records.
• Before listing the house, check which owners pass the two-out-of-five-year ownership and use test under § 121(a).
• After a death, the executor or surviving joint tenant should get a date-of-death appraisal. As IRS Publication 523 explains, that value becomes the heir’s basis.

A CPA or estate attorney can run these numbers for your own state and filing status. Ownership, beneficiary forms, and the choice between a deed change and a trust are exactly the paperwork that determines whether money passes to family or to lawyers, and the full checklist is in a free estate planning guide.

One Figure Decides It

On the same house at the same price, the daughter owes $37,500 in capital gains tax, plus net investment income tax if her mother sells it while alive and $0 if she inherits it. Only the timing of the sale changes.

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