Inheritance

• If you decide to give your home to your children as an inheritance, it could help you avoid taxation on the transaction. Once you die, the size of your estate will be added up to determine if any estate taxes will be taken out of it. As of 2011, the size of your estate can be $5 million without incurring any tax liability. If the value of your estate is less than this, you can give your home to your kids without any taxes being paid.
  
  

Gift Tax

• If you give your house to your kids while you are still alive, it could cause some tax liability. When you give a gift to your children, you have an annual and lifetime gift limit to adhere to. Each year, you can give up to $13,000 (or $26,000 if you are married) to each one of your children (as of 2011) without paying any taxes. Any gifts above that amount go toward your lifetime limit. At the time of publication, you can give up to $5 million in your lifetime before incurring any gift taxes.
  
  

Inexpensive Sale

• In some cases, you may have the idea of selling your house for a discount to your child. While you do have the option of doing this, it can also trigger some tax liability. The difference between the fair market value of the house and what you sold it for will count as a gift when selling to a family member. This amount will go toward the annual and lifetime gift tax limits to determine if any tax liability is incurred.
  
  

Property Taxes

• When you give your house to your children, you will also eliminate property taxes that you are paying. Property taxes are charged by the local government based on the value of the property. Once the property transfers to your children's ownership, they will have to start paying property taxes on it. This will eliminate another tax that you have to pay on an annual basis. It also eliminates a deduction that you have most likely been taking on your federal taxes.