For many parents, helping a child buy their first home is one of the most meaningful financial gifts they can make. But there is a big difference between simply writing a check and structuring the help in a way that makes sense for your family, your taxes, and your long-term financial plan.
With home prices and mortgage payments much higher than they were for previous generations, parental assistance has become increasingly common. If you are considering helping a child with a down payment or home purchase, here are some of the strategies worth understanding.
Start With Your Own Financial Plan
Before helping your children buy a home, make sure the gift does not compromise your own financial security. You can borrow money to buy a house. You cannot borrow money to fund your retirement.
That does not mean you shouldn’t help your children. It simply means the amount and timing of the help should fit within a financial plan that already accounts for your retirement, healthcare costs, spending needs, and other goals. Once that foundation is in place, there are several ways to help.
1. Give Them Money for a Down Payment
The simplest approach is often an outright gift.
For example, you might give your child $50,000 toward the down payment on a $400,000 home. The IRS allows you to give up to $19,000 per recipient in 2026 without using any of your lifetime gift and estate tax exemption. A married couple can generally give up to $38,000 per recipient using both spouses' annual exclusions. But there is an important distinction: A gift above the annual exclusion does not automatically mean you owe gift tax.
If you give more than the annual exclusion, you may need to file a gift tax return (Form 709), and the excess generally counts against your lifetime gift and estate tax exemption. For 2026, that federal exemption is $15 million per person. For most families, this means a large gift may create a tax filing requirement without creating an immediate tax bill.
That said, families with substantial estates should coordinate larger gifts with their estate plan and tax professional.
2. Give Appreciated Investments Instead of Cash
If you have a large taxable investment account, another option is to give your child appreciated investments rather than selling the investments yourself and giving them cash.
For example, suppose you own stock worth $100,000 that you originally purchased for $40,000. If you sell it yourself, you may owe capital gains tax on the $60,000 gain. Instead, you could potentially give the investment to your child. The tax consequences do not simply disappear, however. In general, property received as a gift carries over the donor's basis, meaning your child may eventually recognize the gain when they sell the investment.
Whether this makes sense depends on your tax bracket, your child's tax situation, the investment's unrealized gain, and how quickly the money needs to be available for the home purchase. This is one area where it is worth doing the math before selling investments.
3. Match Your Child's Savings
You do not necessarily have to fund the entire down payment. Another approach is to create a matching arrangement.
For example:
"For every $1 you save towards your down payment, we'll contribute $1, up to $25,000."
This can provide meaningful assistance while still requiring your child to save and participate in the process. It also gives you an opportunity to help your child develop good financial habits rather than simply removing the financial hurdle entirely.
4. Make a Family Loan
Instead of giving the money, you could lend it. A properly arranged intrafamily loan can allow parents to help with financing while maintaining an expectation that the money will eventually be repaid.
However, this should be treated like a real loan, not a handshake agreement. The loan should have appropriate documentation, a defined repayment schedule, and an interest rate that complies with applicable IRS rules. The IRS publishes applicable federal rates (AFRs) that are used for certain below-market loans. For example, the September 2026 AFRs range from 4.18% for short-term loans to 5.12% for long-term loans using annual compounding.^1 There can also be income-tax consequences for the parents receiving interest and potential complications if payments are missed or the loan is later forgiven.
A family loan can work, but it is generally worth involving your CPA and attorney before putting one in place.
5. Help Them Live at Home While They Save
Sometimes the most tax-efficient strategy is also the simplest. If circumstances allow, your child could live at home for a defined period while saving aggressively for a down payment. Avoiding rent for even a year or two can make a significant difference in how quickly someone accumulates cash.
This approach also avoids many of the tax and legal complications associated with transferring large amounts of money or taking ownership of a property. Of course, living with your adult children comes with its own set of considerations. A clear timeline and expectations can help.
What About Co-Signing?
Co-signing a mortgage can help a child qualify for a larger loan, but it deserves a lot of caution.
When you co-sign, you are not simply helping someone qualify. You are taking on legal responsibility for the debt. If your child cannot make the mortgage payments, the lender can look to you for repayment. The debt can also affect your own ability to borrow and potentially complicate your financial plan.
If the reason your child needs a co-signer is that they cannot qualify for the mortgage on their own, that may be worth viewing as a signal to take a closer look at whether the house is affordable in the first place.
Don't Forget the Non-Tax Questions
The tax treatment is important, but it is not the only consideration.
Before providing a large amount of money, think through questions such as:
Is this a gift or a loan?
If it is a loan, what are the repayment terms?
Will the money be available if you need it later?
What happens if your child sells the home?
What happens if your child gets divorced?
Are you helping one child more than another?
Will the gift affect your estate plan?
Is your child buying a home they can actually afford after accounting for taxes, insurance, maintenance, and other costs?
Most importantly, make the expectations clear before the money changes hands. A gift with strings attached can create just as many family problems as a poorly structured loan.
The Goal Is to Help Without Creating a New Problem
Helping your children buy a home can be a great use of wealth. But the goal should not simply be to get them into a house. It should be to help them build a strong financial foundation without putting your own financial security at risk.
There is no single "best" way to do it. For some families, that may mean an outright gift. For others, it may mean matching savings, transferring appreciated investments, making a properly structured family loan, or simply giving their child time to save while living at home. The right approach depends on your tax situation, estate plan, investment portfolio, and family circumstances.
If you are considering helping a child or grandchild purchase a home, this is a good example of a decision worth planning before the money moves.
The information contained in this article is intended solely for general educational purposes. Discussion of gift tax exclusions, unified lifetime gift and estate tax exemptions, gift-splitting elections, charitable gifts, transfers to educational or medical providers, and Form 709 filing requirements is provided as a general overview and is not intended as personalized tax, legal, estate planning, or accounting advice. Tax laws and IRS interpretations may change, and the application of these rules depends on an individual's facts and circumstances. Readers should consult qualified tax and legal professionals before implementing any gifting strategy or determining whether a gift tax return filing is required and can also visit the IRS website for current information regarding Federal gift and estate tax laws. Advisory services are provided only pursuant to a written advisory agreement.
1. Internal Revenue Service, Revenue Ruling 2026-17, Applicable Federal Rates (AFR) for September 2026, Internal Revenue Bulletin 2026-37, September 8, 2026. IRS Revenue Ruling 2026-17