If the house is deeded to me while my relative is still alive, what taxes could I be responsible for later if I decide to sell it? – North Carolina

Short Answer

In North Carolina, the biggest “later” tax issue after receiving a house by deed during a relative’s lifetime is often capital gains tax when the home is sold, because a lifetime deed transfer typically carries over the relative’s original tax basis instead of resetting it at death. If the home is inherited at death (by will or many trusts), the tax basis is often adjusted to the home’s value at the date of death, which can reduce taxable gain on a later sale. Separate from income taxes, North Carolina also charges an excise tax when a deed is recorded, and property taxes continue to apply while the home is owned.

Understanding the Problem

Under North Carolina estate planning, the decision point is whether transferring a relative’s home into another person’s name while the relative is still alive changes what taxes may be owed later when the home is sold. The question focuses on the tax consequences tied to the method and timing of the transfer (a deed now versus receiving the home later through an estate plan), especially when another family member is living in the home at the time of transfer.

Apply the Law

North Carolina generally follows federal concepts for taxing profit on the sale of real estate, including the idea of “basis” (the starting number used to calculate gain). A lifetime gift by deed often results in a carryover basis, while an inheritance at death often results in an adjusted basis tied to date-of-death value. North Carolina also imposes an excise tax on recorded deeds, collected by the county register of deeds. Property taxes are assessed by the county regardless of how the home was acquired.

Key Requirements

How the home was acquired (gift deed vs. inheritance): A deed during life is commonly treated as a gift transfer for income-tax basis purposes, while a transfer at death is commonly treated as an inheritance.
Tax basis and improvements: The taxable gain on a later sale generally depends on the owner’s basis (often the original purchase price plus certain improvements, minus certain adjustments), compared to the sale price.
Whether a deed is recorded in North Carolina: Recording a deed can trigger North Carolina’s real property excise tax, typically paid at recording through the register of deeds.

What the Statutes Say

N.C. Gen. Stat. § 105-228.30 (Excise tax on conveyances) – Imposes an excise tax on recorded instruments conveying an interest in real property, generally $1 per $500 of consideration or value.
N.C. Gen. Stat. § 105-1.1 (Inheritance tax repealed) – Notes that North Carolina’s inheritance tax statutes were repealed for estates of decedents dying on or after January 1, 1999.

Analysis

Apply the Rule to the Facts: The relative already has a will leaving the home to the intended recipient, but is considering deeding the home now. If the home is deeded during the relative’s lifetime, the recipient may later face a larger taxable gain on sale because the recipient’s basis may track the relative’s original basis rather than a value reset at death. If the home is instead received at death through the estate plan, the later sale may produce less taxable gain because the basis is often closer to the home’s value at the time of death.

Process & Timing

Who files: The current owner (transferor) signs the deed; the deed is then recorded. Where: The Register of Deeds in the North Carolina county where the property is located. What: A properly prepared and notarized deed (commonly a general warranty deed, special warranty deed, or quitclaim deed, depending on the plan) and any required recording forms. When: If transferring during life, the deed is recorded as soon as the parties are ready; the excise tax is typically paid before recording under the statute.
Tax reporting and records: After transfer, keeping records becomes critical (prior purchase information, improvement receipts, and closing statements), because those documents often support basis and reduce later taxable gain.
Later sale: When the home is sold, the owner reports the sale on the applicable income tax returns. If the owner did not live in the home as a primary residence, common home-sale exclusions may not apply, and the gain calculation may matter more.

Exceptions & Pitfalls

Carryover basis surprise: A lifetime deed transfer can create an unexpected capital gains issue later if the home has appreciated over many years and the recipient sells soon after receiving it.
Gift and federal tax filings: Even though North Carolina does not have an inheritance tax and does not impose a separate state gift tax, a lifetime gift can still create federal reporting issues (and the rules can be technical). A tax attorney or CPA should review gift reporting and basis documentation.
Deeding the home does not automatically solve occupancy disputes: If another family member lives in the home, transferring title can shift who has the right to make decisions, but it can also create conflict if expectations are not documented. A written occupancy agreement (and clear rules about rent, repairs, and move-out conditions) often prevents later disputes.
Medicaid and creditor planning risks: Deeding a home during life can affect eligibility planning and creditor exposure in ways that do not show up until later. The “best” transfer method often depends on health, timing, and who needs control of the property.
Excise tax at recording: Even a “family transfer” can trigger North Carolina’s excise tax based on consideration or value, depending on how the deed is structured and recorded.

Conclusion

In North Carolina, receiving a house by deed while a relative is still alive can increase the risk of capital gains tax later if the home is sold, because the recipient may take the relative’s existing tax basis rather than a basis adjusted at death. Recording the deed can also trigger North Carolina’s excise tax, and property taxes continue during ownership. A practical next step is to have an attorney review the planned deed and the home’s basis records before recording anything with the county register of deeds.

Talk to a Estate Planning Attorney

If you’re dealing with a planned family home transfer and concerns about later taxes and timing, our firm has experienced attorneys who can help you understand your 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.