If I put my child on the title now, will they lose the step-up in basis and end up paying more capital gains tax when the house is sold? – North Carolina

Short Answer

Often, yes. In many common North Carolina deed setups, adding an adult child to the home’s title during the parent’s lifetime can cause the child to receive part (or all) of the property as a lifetime gift instead of by inheritance, which can reduce or eliminate the “step-up” in tax basis at death. That can increase capital gains tax later when the home is sold, depending on the home’s value, the parent’s original cost basis, and how the deed is structured.

Understanding the Problem

Under North Carolina estate planning, the decision point is whether adding an adult child to a home’s deed now (during the parent’s lifetime) changes how the child receives the property later and, as a result, changes the tax basis used when the home is sold. The key issue is whether the child receives an ownership interest by a lifetime transfer versus receiving the home at death through an inheritance-type transfer. The timing of the transfer (now versus at death) is what typically drives whether a step-up in basis applies.

Apply the Law

North Carolina law controls how title can be held (for example, as tenants in common or as joint tenants with right of survivorship), and that choice affects what happens to the ownership interest at death. The “step-up in basis” and capital gains rules are federal tax concepts, but the deed structure under North Carolina law often determines whether the child is treated as receiving the property during life (commonly a gift of an interest) or at death (commonly an inheritance-type transfer). Because this question involves tax consequences, the safest approach is to have the deed plan reviewed by an estate planning attorney and a tax professional before signing and recording anything.

Key Requirements

How the deed is drafted: Adding a child as a co-owner (for example, as a tenant in common or joint owner) usually transfers a present ownership interest during life, which can affect whether a step-up applies later.
What interest the parent keeps: If the parent keeps full ownership until death, the home is more likely to receive a basis adjustment at death; if the parent gives away part of the ownership now, that transferred part may keep the parent’s old basis.
How the property passes at death: If the deed is set up to pass automatically at death (such as survivorship language), the transfer mechanics differ from a will-based transfer, and the tax result can depend on whether the transfer is treated as a lifetime gift versus a transfer at death.

What the Statutes Say

N.C. Gen. Stat. § 41-71 (Creation of a joint tenancy with right of survivorship) – Explains that a deed to two or more people is generally a tenancy in common unless the instrument clearly expresses an intent to create a joint tenancy with right of survivorship.
N.C. Gen. Stat. § 41-72 (Determination of the interests of joint tenants) – Provides default rules about joint tenants’ interests (generally equal unless the deed says otherwise), which matters when a parent adds a child as a co-owner.

Analysis

Apply the Rule to the Facts: The facts describe an older adult in North Carolina with non-home assets already set up with beneficiary designations and a will/codicil naming one adult child in key roles, with family tension among adult children. If the home is retitled now to add one child, that typically creates a present ownership interest for that child under the deed, which can reduce the portion of the home that later receives a basis adjustment at death. In a family with tension, retitling can also create practical problems (shared control, disputes about sale or refinancing) that show up long before any later sale and tax reporting.

As a general planning concept, a child who receives an ownership interest by lifetime transfer often takes the parent’s existing basis for that transferred portion, while property received at death is more likely to receive a basis adjustment at death. That is why adding a child to title “to avoid probate” can unintentionally trade a probate concern for a capital gains concern. The exact outcome depends heavily on the deed language and the overall plan.

For example, if a parent deeds a 50% interest to a child now and keeps 50%, the child may later have a mixed basis: the gifted portion may keep the parent’s old basis, while the portion the child receives at the parent’s death may be adjusted at death. If instead the parent keeps full ownership until death and the child receives the home through the estate plan, the child is more likely to have a basis closer to the home’s value at death, which can reduce capital gains when sold soon after.

Because this question is about capital gains tax, the deed choice should also be weighed against other common consequences of adding a child to title: exposing the home to the child’s creditor risks, complicating future refinancing or sale, and creating uneven treatment among children that can intensify conflict. In many plans, there are alternatives that can address probate-avoidance goals without creating the same tax and control issues. For more background on deed-based transfers, see adding an adult child to the deed and life estate deed planning.

Process & Timing

Who files: The current owner(s) sign the new deed; the deed is then recorded. Where: The Register of Deeds in the North Carolina county where the property is located. What: A properly drafted deed that clearly states the intended form of ownership (for example, whether it is a tenancy in common or a joint tenancy with right of survivorship). When: Before the intended ownership change takes effect; recording is typically done promptly after signing.
Next step: Update the broader estate plan so the deed matches the will/codicil and beneficiary designations, and so the plan addresses family conflict risks (for example, who controls the property if capacity declines). Timing can vary by county recording practices and how quickly supporting documents can be prepared.
Final step: Confirm how the new title affects insurance, mortgage terms, and future sale authority, and coordinate with a tax professional to understand the likely basis and capital gains reporting outcome under the chosen structure.

Exceptions & Pitfalls

Unintended gift consequences: Adding a child to title commonly functions like a gift of a present ownership interest, which can change the tax basis outcome and may require additional tax planning with a CPA or tax attorney.
Loss of control: A co-owner may need to sign for a later sale, refinance, or certain title changes. That can be a major issue when there is family tension.
Creditor and divorce exposure: Once a child becomes an owner, the child’s financial problems can become a problem for the property.
Mismatch with the estate plan: A deed that favors one child can conflict with a will/codicil or the intended equal treatment of children, creating disputes after death.
Deed language errors: If the deed does not clearly express survivorship intent, North Carolina law generally treats the ownership as a tenancy in common, which can change what happens at death and create probate issues the deed was meant to avoid.

Conclusion

In North Carolina, adding an adult child to a home’s title during the parent’s lifetime often causes the child to receive a present ownership interest by lifetime transfer, which can reduce or eliminate the step-up in basis for that transferred portion and increase capital gains tax when the home is later sold. The result depends on the deed language and how the interest passes at death. The next step is to have an attorney review the proposed deed before it is recorded with the county Register of Deeds.

Talk to a Estate Planning Attorney

If you’re dealing with whether to add an adult child to a home’s deed and how that could affect taxes and family conflict, our firm has experienced attorneys who can help explain options and timelines. Call us today at [919-341-7055].

Disclaimer: This article provides general information about North Carolina law based on the single question stated above. It is not legal advice for your specific situation and does not create an attorney-client relationship. Laws, procedures, and local practice can change and may vary by county. If you have a deadline, act promptly and speak with a licensed North Carolina attorney.