Helping an Adult Child Purchase a Home
I recently met with a couple who wanted to help their adult child navigate today’s challenging housing market. This has come up many times over the past few years as more people are getting priced out of the housing market due to high real estate prices and high interest rates.
Their plan was to give a sizable lump sum for a down payment to keep the mortgage payment more manageable for the child.
Together, we walked through several important questions:
Is it the best decision for the child?
Given higher interest rates, the stereotypical advice of “rent is throwing away money” does not apply. It’s not uncommon for rent to be substantially less than the typical mortgage payment for the same property right now. For example, a $400,000 home with 20% down and a 6.5% interest rate, might cost about $2,800/month (mortgage payment, $535 in tax/insurance/HOA, and about $4,000/yr in maintenance). Of that $33,600/yr in cost, only about $4,000 is going toward principal that is building equity. The remaining roughly $30,000 is interest, taxes, insurance, and other costs. You may very well be able to rent for far less than that.
However, you do build equity if your home price appreciates. And in their case, their child was ready to own a place of their own that they could call home after renting in the same area for many years.
What are the gifting rules?
The IRS allows each individual to give up to a certain amount each year, known as the annual gift tax exclusion, without incurring gift tax or using their lifetime exemption. Married couples can combine their exclusions to double that amount. For this married couple, they could each gift $19,000 (the 2025 limit), or $38,000. If they wanted to gift more without using up their exemption, they could split it between two calendar years ($38,000 in December and another $38,000 in January).
However, most people will never pay gift taxes due to the substantial lifetime exemption of nearly $14mm!
What is the best way to give?
When helping a child buy a home, you can give cash or appreciated stock, and the choice can make a big difference.
Cash gifts are straightforward and most common for down payments, since mortgage lenders generally require funds to be “seasoned” in the buyer’s account for verification.
Appreciated stock, however, can be a smart move if the parent holds investments that have grown significantly in value. When gifted, the child assumes the parent’s cost basis.
Here’s where it gets interesting: if the child (or their married household) has low-to-moderate income, they may qualify for the 0% long-term capital gains tax rate.
For 2025, the 0% rate applies to taxable income up to about:
$96,700 for married couples filing jointly, or
$48,350 for single filers.
This means the child could potentially sell the appreciated stock, pay no federal capital gains tax, and use the proceeds toward their home purchase.
How does this affect your own retirement plan?
We revisited their full retirement plan, including projected Social Security, future spending needs, and possible part-time income. By stress-testing different scenarios, we identified how much they could comfortably give, and for how long, without derailing their own goals.
In the end, we struck the right balance: they could meaningfully support their child’s home purchase and stay on track for a secure retirement.
Helping your adult child buy a home can be deeply rewarding, but it’s important to approach it with the same discipline you’d apply to any major financial decision. With thoughtful planning and a clear view of your long-term picture, you can extend generosity without sacrificing your own peace of mind.
Happy Planning,
Alex
This blog post is not advice. Please read disclaimers.