The costs associated with a deed transfer will vary by state and by how the transfer is accomplished. Filing a deed yourself may be the cheapest method, but it will require quite a bit of homework to ensure you have filled out and correctly filed the appropriate paperwork. Online legal document centers, such as LegalZoom, offer deed transfer services for around $250, plus filing fees. These services typically include title research, creation of the real estate deed and filing of the deed with the county recorder's office. You can also hire a real estate attorney to execute the deed transfer. This might be the most expensive option, but it may also be the least stressful since you would be certain the transfer was executed appropriately.

Tax consequences can end up costing your child more money than if he or she were to inherit the property. Assume you purchased your home years ago for $50,000. Over the years you put $20,000 into the home. It has a current market value of $250,000. Because you transferred the home to your child while you were still living, your cost basis, which would be $70,000, becomes your child's basis. If your child sells the home, he or she would owe capital gains taxes on the difference between the sale price and the cost basis, which would be $180,000. At a capital gains rate of 15%, that would equal $27,000 in taxes. The tax rate will be higher if you owned the home for less than one year, at which point the profit would be taxed as ordinary income.

If your child moves in and lives in the property for at least two out of five years before selling it, up to $250,000 of profit can be excluded. However, $500,000 can be excluded if filing jointly with a spouse. Your child will have to use your cost basis of $70,000, which includes the $50,000 purchase price plus the $20,000 in improvement costs.

If your child inherits the property upon your death, the child will receive the "stepped-up basis" where the value of the property on the date of your death becomes the child's basis. So, if the property has a market value of $250,000 at the time of your death, your child could sell the home for $250,000 and not be responsible for capital gains tax.

It has been suggested that the stepped-up basis rule could be modified in the future. Since tax rules do change, it is important to consult with a qualified tax specialist before making any decisions.

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