How does a qualified personal residence trust (QPRT) work?
Depends on the term, the §7520 rate, and your health
A QPRT is an irrevocable trust that holds your home, lets you live there for a fixed term, and then passes it to your beneficiaries. Under IRC §2702(a)(3)(A)(ii) and Treas. Reg. §25.2702-5, the gift is only the remainder value, computed at the §7520 rate. If you die during the term, the home is included in your estate, and beneficiaries take your basis rather than a stepped-up basis.
Reviewed by Ebot Mbi, CPA, EA · Last reviewed · Law and figures current as of September 17, 2026
Key takeaways
- Personal residence trusts are excepted from §2702's zero-value rule by §2702(a)(3)(A)(ii) if they meet Treas. Reg. §25.2702-5.
- The gift equals the home's value minus your retained term interest (and any reversion), at the §7520 rate for the month of transfer.
- Higher §7520 rates produce a smaller gift; the September 2026 rate is 5.4%.
- If you die during the term, the full date-of-death value is included in your estate under §2036.
- Beneficiaries take your carryover basis (§1015), and staying after the term requires paying fair rent.
What it is
A qualified personal residence trust lets you give your home, or a vacation home, to your children now while continuing to live in it for a set number of years. Because the children receive the home only after the term, the gift is valued at a discount from today's value.
When the term ends, the home belongs to the remainder beneficiaries or to a continuing trust for them. If you want to stay, you lease it at fair market rent.
A QPRT is a better fit when interest rates are higher: a higher §7520 rate increases the value of your retained term and reduces the taxable gift. That is the opposite of a GRAT, which generally works better when the rate is low.
What the law says
IRC §2702 generally values a retained interest at zero when you transfer property in trust to family, which would make the gift equal to the full value of the home. Section 2702(a)(3)(A)(ii) excepts a transfer in trust whose property consists of a residence used as a personal residence by the term holders. Treas. Reg. §25.2702-5 sets the rules for personal residence trusts (§25.2702-5(b)) and qualified personal residence trusts (§25.2702-5(c)).
The retained term interest, and any contingent reversion if you die during the term, is valued under §7520. If you die during the term, §2036 includes the residence in your gross estate at its date-of-death value, and the earlier gift is removed from adjusted taxable gifts.
Requirements and tests
You can hold no more than two residences in QPRTs at the same time, one of which must be your principal residence. A vacation home qualifies if you use it as a residence for the required period, which is the greater of 14 days or 10% of the days it is rented. The trust can hold cash only for up to six months of expenses and, in limited cases, for improvements or a pending purchase.
- The trust holds one personal residence (plus limited cash for expenses and improvements) used by you as a residence.
- The governing instrument prohibits selling the residence to you, your spouse, or an entity you control during the term.
- If the home is sold or stops being a residence, the trust must either buy a new residence within the regulatory period or convert to a qualified annuity for the rest of the term.
- Trust income is distributed to you at least annually; there is no commutation.
- After the term, any continued use is under a lease at fair market rent.
- The transfer is reported on Form 709, with an appraisal of the home.
How it works
You deed the home to the trust and pay the ordinary expenses during the term. The gift value is computed using the home's appraised value, the term, your age if the trust includes a reversion, and the §7520 rate. At the end of the term, the home passes out of your estate, including all appreciation after the transfer.
The trust is a grantor trust during the term, so you can still claim the mortgage interest and property tax deductions within the normal limits, and the §121 home sale exclusion can remain available. Texas owners should confirm the effect on the residence homestead exemption and consult the appraisal district.
Assumptions: Home appraised at $3,000,000; 10-year term; transfer in September 2026.; Shown without a reversion, so the remainder equals value × (1 + rate)^-10. A reversion to your estate if you die during the term would lower the gift by an amount that depends on your age under the IRS actuarial tables.; Rates: 5.4% (September 2026 §7520 rate) and an illustrative 4.0%.
| Remainder (taxable gift) at 5.4% | $1,773,026 |
|---|---|
| Remainder (taxable gift) at 4.0% | $2,026,693 |
| Exemption preserved vs. an outright gift, at 5.4% | $1,226,974 |
| If you die in year 9 | Full date-of-death value included in the estate |
| Beneficiaries' basis if you survive the term | Your basis (carryover) |
At the September 2026 rate, the gift is about $1.77 million before any reversion adjustment, and the benefit depends on surviving the full 10 years.
Illustration only; not a projection of your results.
Risks and IRS scrutiny
The main risk is death during the term, which undoes the transfer for estate tax purposes. Other costs: the beneficiaries take your basis, so a later sale can produce capital gain; rent after the term is a real cost; and a mortgaged home complicates the structure. The IRS reviews the appraisal and whether the trust meets the regulatory requirements.
Who it is not for
This is not for estates comfortably under the $15,000,000 exemption, for anyone likely to move or sell, for anyone in poor health relative to the term, or for anyone unwilling to pay rent to their children after the term.
It is also not a good fit for a home with a large mortgage, because each principal payment you make can be treated as an additional gift to the trust.
How ebotCPA helps
We compute the gift value at the current §7520 rate for several terms, model the estate tax and lost-basis effects, and prepare the Form 709. We coordinate with your attorney, who drafts the legal documents. We also work with the appraiser.
Book a $497 Case Analysis to have Ebot Mbi, CPA, EA review your facts before you act.
We coordinate with your attorney, who drafts the legal documents.
Frequently asked questions
What happens if I die during the QPRT term?
The home is included in your estate at its date-of-death value under §2036, so the plan provides no estate tax benefit.
Can I stay in the house after the QPRT term ends?
Yes, but you must pay fair market rent to the new owners. Rent-free use could cause estate inclusion.
Can the QPRT sell my house?
Yes. The trust must then buy a replacement residence within the regulatory period or convert the proceeds to a qualified annuity for you (Treas. Reg. §25.2702-5(c)).
Do my children get a step-up in basis?
No, if you survive the term. They take your basis under §1015.
Have facts like these?
Book a $497 Case Analysis to have Ebot Mbi, CPA, EA review your facts before you act.