Deed the House to Your Child or Put It in Your Will? First, Do Your Homework.

To take advantage of this stepped-up basis, you have to receive the property by "bequest, devise or inheritance." That's legal language meaning that you inherited the property when the previous owner died.

The answer to your question is not easy. Much depends on your daughter's plans. If she wants to live in the house and you are definitely planning on moving out, then it might be a good idea to give her the house.

But there are other options. Talk with your tax and financial advisers about selling her the house and taking back a mortgage. She would make monthly payments to you. If she cannot afford those payments, you have the right to give her (completely tax-free for both of you) up to $12,000 a year. This gift would help to reduce the value of your estate while at the same time assisting your daughter with the mortgage payments. She can even offset $1,000 a month to reduce her mortgage obligations to you.

There is one catch to all of this. Unless Congress changes the law, as of Jan. 1, 2010, the stepped-up-basis rules will no longer be in effect. Instead, Congress has replaced them with a modified carryover basis. This means that if you die after the target date, your daughter's tax basis would be the lower of your adjusted tax basis (which in our example was $100,000) or the fair market value on the date of your death.

The bottom line: Should you die after Jan. 1, 2010, your daughter's basis would be the same as yours, $100,000. As that time approaches, you might as well consider giving her the house or selling it to her.

There is one additional issue you should consider. Make sure all your children understand your rationale for wanting to give the house to just one of them. You don't want your other children angry at you or each other, now or after your death.

For more information, go to the IRS Web site ( http://www.irs.gov) and click on "Publications" to get Publication 523, "Selling Your Home."

Benny L. Kass is a Washington lawyer. For a free copy of the booklet "A Guide to Settlement on Your New Home," send a self-addressed stamped envelope to Benny L. Kass, 1050 17th St. NW, Suite 1100, Washington, D.C. 20036. Readers may also send questions to him at that address or contact him through his Web site, www.kmklawyers.com.