How Does Adding a Child to a Property Deed Impact Capital Gains Taxes in Maryland?

A capital gains tax is based on the increased value of an asset. When a major asset, such as a home or an investment, is sold, capital gains taxes are likely to apply. A question we’re often asked is whether or not a property should be gifted to a beneficiary while the property owner is alive, or as an inheritance after death.

For example, if you purchased a property for $100,000 twenty years ago, its fair market value will likely have increased significantly. Let’s say it’s value today is $225,000. If you were to sell the property today, you would pay capital gains taxes on $125,000 since the cost basis would be the original purchase amount. If you designate your children as a beneficiary in a valid Maryland will, the “stepped-up” cost basis would be $225,000, thus there would be no capital gains taxes.

You should always consider the tax implications when adding someone to your deed. Seek guidance from an accountant or financial advisor before making any important decisions about your assets.

For a free, confidential conversation to discuss estate planning, including the transferring of a deed, contact Maryland property law attorney Stephen J. Reichert at 410-299-4959 or sreichert@reichertlegal.com.

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