Qualified Personal Residence Trust (QPRT): Rules and 2026 Math

What the statute allows and what the regulation requires

Section 2702 of the Code is an anti-abuse rule. When you put property in trust for your family and keep an interest in it, it values what you kept at zero unless what you kept is a “qualified interest” (a fixed annuity or a fixed-percentage unitrust payment). Its text: “The value of any retained interest which is not a qualified interest shall be treated as being zero” (26 U.S.C. 2702(a)(2)(A)). A right to live in a house is not one of the qualified interests listed in section 2702(b) (our reading), so without an exception the whole house would be a gift.

The exception that makes a QPRT possible is two lines long. Section 2702(a)(3)(A)(ii) says the rule does not apply to any transfer “if such transfer involves the transfer of an interest in trust all the property in which consists of a residence to be used as a personal residence by persons holding term interests in such trust.” Treasury turned that into a definition in 26 CFR 25.2702-5, which opens: “A transfer in trust meets the requirements of this section only if the trust is a personal residence trust” (25.2702-5(a)(1)). A QPRT is the narrower kind, with the extra terms of paragraph (c). Those terms must be in the trust document itself: “These requirements must be met by provisions in the governing instrument, and these governing instrument provisions must by their terms continue in effect during the existence of any term interest in the trust” (25.2702-5(c)(1)).

The regulation then governs what happens when the facts change. If the house is sold, the trust may hold the proceeds only in a separate account and must stop being a QPRT as to them at the earliest of three events: two years after the sale, the end of your term, or the purchase of a new residence (25.2702-5(c)(7)(ii)). If it is destroyed, the same two-year clock runs from the damage unless repairs finish or a new residence is acquired (25.2702-5(c)(7)(iii)). When the trust ceases to be a QPRT as to any assets, the instrument must provide that, “within 30 days”, the assets are either distributed outright to you or converted into a qualified annuity interest for the rest of your term (25.2702-5(c)(8)(i)). The regulation’s own example 6 walks through a $250,000 sale, reinvestment in stock, and a $200,000 replacement house.

Two details matter for ordinary families. Moving out is not fatal: in example 5 a grantor who goes to a nursing home keeps the trust qualified “If the residence is available at all times for T's use as a residence during the term (without regard to T's ability to actually use the residence)”, but the residence would cease to be held for use if the trustee rented it to an unrelated party. And a drafting mistake can be fixed, but on a clock: a non-complying trust is treated as complying if it is reformed, and for trusts created after 1996 “the reformation must be commenced within 90 days after the due date (including extensions) for the filing of the gift tax return” (25.2702-5(a)(2)).

A vacation home can qualify, but only as “one other residence” that passes section 280A(d)(1): you use a dwelling as a residence if you use it personally for more days than “the greater of— (A) 14 days, or (B) 10 percent of the number of days during such year for which such unit is rented at a fair rental” (26 U.S.C. 280A(d)(1)). Regulation example 2 is a condominium rented out six months of the year that still qualifies because the owner occupies it at least 18 days and provides no substantial services. One oddity of the text: the principal-residence test points to section 1034, which the Code’s own notes say was repealed by Public Law 105-34 on August 5, 1997 (26 U.S.C. 121, editorial notes); the regulation as we read it in the eCFR still names it, and the current home-sale rule is section 121 (our reading). A lawyer will ask how the “principal residence” test is met on the facts.

What happens if the trust is not drafted to the letter

Section 2702 is a trap with a number attached. If the instrument misses a requirement and is not reformed, the exception in section 2702(a)(3)(A)(ii) is unavailable (our reading), your retained right to use the house is not a qualified interest, and it is valued at zero. Treasury’s regulation says so: “If the retained interest is not a qualified interest (as defined in § 25.2702-3), the retained interest is generally valued at zero, and the amount of the gift is the entire value of the property” (26 CFR 25.2702-1(b)). For our example house that is a gift of $2,000,000 instead of $952,610, an extra $1,047,390 of exemption used for nothing (our arithmetic). The rest of this page assumes a trust that meets the regulation.

If the grantor dies during the term

This is the risk the discount is paid for. Section 2036(a) of the Code puts in the gross estate the value of property you transferred but kept “for his life or for any period not ascertainable without reference to his death or for any period which does not in fact end before his death”, namely “the possession or enjoyment of, or the right to the income from, the property.” A QPRT keeps exactly that, for a fixed term. If you die before the term ends, the retained use has not ended before your death, and the regulation says the amount included is “the value of the entire property” (26 CFR 20.2036-1(c)(1)(i)). The IRS’s own instructions for Form 709 use a QPRT as the example: “if you transfer a house to a qualified personal residence trust for a term of 10 years, with the remainder to your granddaughter, the value of the house will be includible in your estate if you die during the 10-year term.”

What that does and does not cost (our reading of the sources named):

• The house is in the estate at its value at death, not at its value when you gave it, so any growth during the years you lived has been pulled back in.
• The gift is not counted twice. “Adjusted taxable gifts” are those made after 1976 “other than gifts which are includible in the gross estate of the decedent” (26 U.S.C. 2001(b)), so the exemption used at the time of the gift is not added back a second time.
• The children get a stepped-up basis. Section 1014(b)(9) covers property acquired from a decedent “if by reason thereof the property is required to be included in determining the value of the decedent's gross estate”, so the house takes its estate value as basis.
• The regulation expects it. Paragraph (c)(9) of 25.2702-5 says the ban on transfers does not apply to a distribution of the house, for no consideration, to any person “(including the grantor's estate)” if the grantor dies before the term ends, which fits a document that returns the house to the estate or gives the grantor a power to name who takes it (our reading).
• What is lost is the transfer itself: the estate tax the plan was meant to save, plus the legal, appraisal and filing costs. The Form 709 must include “Either a qualified appraisal or a detailed description of the method used to determine the fair market value of the gift” (Instructions for Form 709).

Our example grantor, aged 65, has an 82.1% chance of reaching the end of a 10-year term under the IRS mortality table, and 49.2% of a 20-year term (Table 2010CM, our arithmetic). That table is the one the law prescribes for valuation; it is not a forecast for any person.

After the term: the house is theirs, and so is the rent

When the term ends the house belongs to the beneficiaries. The regulation closes the obvious back door: the trust may not sell or transfer the residence to you, your spouse or an entity you control “at any time after the retained term interest that the trust is a grantor trust”, and a transfer to another grantor trust of yours counts as a transfer to you (25.2702-5(c)(9)). The same paragraph carves out “an outright distribution (for no consideration) of the residence to the grantor's spouse after the expiration of the retained trust term”.

Living there after the term is the part the regulation does not write. It says nothing about leasing, so the limit comes from section 2036 and the regulation that goes with it: an interest is treated as retained “if at the time of the transfer there was an understanding, express, or implied, that the interest or right would later be conferred” (26 CFR 20.2036-1(c)(1)(i)). Our reading: a house you keep occupying after the term on no lease, or on a lease below market rent, invites the argument that the retained use never ended and the house is in the estate after all. A written lease at fair rental value, paid and recorded, is the form we would expect the arrangement to take, and what rent is fair is a question for the drafting attorney, because we found no regulation or ruling that sets a rent rule (our reading). Rent paid to the children also moves cash out of your estate, which is a tax effect of the lease, not a feature of the trust (our reading).

If the remainder goes to grandchildren, a further form is due: the Form 709 instructions say a house given to a QPRT with remainder to a granddaughter is a completed gift reported on Schedule A, Part 3, and that “On the Form 709 for the year in which the ETIP closes, you should report the GST transfer (a taxable termination) on Schedule D, Part 1”. ETIP is the estate tax inclusion period, the years in which the value would be in your estate if you died.

The Section 7520 rate: October and November 2026

The size of the gift depends on the interest rate the IRS publishes each month. Section 7520(a) fixes it: the value of any “interest for life or a term of years, or any remainder or reversionary interest” is determined using “an interest rate (rounded to the nearest 2/10ths of 1 percent) equal to 120 percent of the Federal midterm rate in effect under section 1274(d)(1) for the month in which the valuation date falls.” The IRS prints it in Table 5 of the monthly revenue ruling. For October 2026, Rev. Rul. 2026-19 gives 5.60%; the IRS page lists the ten months of 2026:

Two points of method. First, the month is the month of the gift. The statute lets a taxpayer use the rate of either of the two preceding months only “If an income, estate, or gift tax charitable contribution is allowable for any part of the property transferred” (26 U.S.C. 7520(a)); a gift to a QPRT has no charitable part, so there is no look-back (our reading), unlike the charitable remainder trust we cover in our charitable remainder trust guide. Second, a higher rate helps a QPRT. The retained term is worth more, and the remainder less, when the rate is higher. In our example, a gift of the same house for the same 65-year-old and 10-year term is $1,047,702 at the January rate of 4.6%, $970,842 at September’s 5.4% and $952,610 at October’s 5.6% (our arithmetic).

The rate for November 2026 is not out. As of October 13, 2026 the IRS Section 7520 page, last updated September 25, 2026, lists October as its latest month; check the IRS page for the month of an actual gift. For how the mid-term rate behind it moved in 2026, see our applicable federal rate guide.

Worked example: a $2,000,000 house, October 2026

Assumptions (ours, for illustration): a house worth $2,000,000 on the day it is transferred; a trust that meets Treasury Regulation 25.2702-5; the grantor keeps the right to live in the house for the term, and if the grantor dies in the term the house goes back to the grantor’s estate; the children take the house at the end of the term; the rate is the October 2026 rate of 5.6%; ages are the age at the nearest birthday, as the valuation regulation provides (26 CFR 25.2512-5(d)(1)). The factors come from three IRS tables on irs.gov; the multiplication is ours, in a saved script.

The formula (our arithmetic). The children get the house only if you are alive when the term ends, so the gift is the value of that contingent remainder:

gift = house value × Table B remainder factor for the term at the 7520 rate × (l at age plus term ÷ l at age)

• Table B (26 CFR 20.2031-7(d)(6)) is the IRS table of term-certain remainder factors. At 5.6% it is 0.579910 for 10 years, which equals 1.056 to the power of minus 10 (our check: the largest difference between Table B and that formula over rates of 4.6%, 5.4% and 5.6% and terms of 1 to 20 years is 0.0000005).
• Table 2010CM (26 CFR 20.2031-7(d)(7)(ii)) is the IRS mortality table of survivors, l. For age 65, l is 84,221.59; for age 75 it is 69,174.83; the ratio, 0.821343, is the table’s probability that a 65-year-old reaches 75.
• Our check on the mortality table: from the same l values we recompute the IRS’s published Table S life-remainder factors for ages 55 to 75 at 5.6%, assuming death in the middle of the year; the largest difference is 0.00020. Our computation and the IRS table agree to within 0.0002.

The core case. 0.579910 × 0.821343 = 0.476305; × $2,000,000 = $952,610. The value of what you keep, the right to live there for up to 10 years plus the return of the house if you die first, is the other $1,047,390 (our arithmetic). Had the grantor been certain to survive, the gift would have been $1,159,820 (0.579910 × $2,000,000); the survival weighting is worth $207,210 of gift value (our arithmetic).

Taxable gift for a $2,000,000 house at the October 2026 rate of 5.6% (our arithmetic; percentage of the $2,000,000 in brackets)

Source: our arithmetic from IRS Table B, Table 2010CM and the 5.6% rate of Rev. Rul. 2026-19; script and output saved. An illustration, not a figure for a return. The actual figure is computed on the Form 709 from the exact ages, the month, and a qualified appraisal.

Chance of reaching the end of the term (Table 2010CM, our arithmetic): for a 65-year-old, 92.6% for 5 years, 82.1% for 10, 67.8% for 15 and 49.2% for 20; for a 75-year-old, 82.5%, 59.8%, 34.1% and 13.0%.

Reading the table (our reading): the discount comes from two sources that pull against each other. A longer term shrinks the remainder, because the children wait longer; but a longer term also raises the chance that the grantor dies inside it, and then the discount buys nothing. Each cell is also a gift of a future interest: the IRS says in its Form 709 instructions that “A gift of a future interest cannot be excluded under the annual exclusion”, so the full amount in the table uses lifetime exemption (Rev. Proc. 2025-32 sets the 2026 annual exclusion at $19,000 for gifts “other than gifts of future interests in property”).

What the $15 million exemption does to this

The federal basic exclusion amount for 2026 is $15,000,000. Rev. Proc. 2025-32, section 3.14, says that section 70106 of the 2025 law “amends § 2010(c)(3) by increasing the basic exclusion amount to $15,000,000 for calendar year 2026” and that the amount “will be adjusted for inflation for calendar year 2027 and future years.” Public Law 119-21 section 70106 struck the old $5,000,000 base and the scheduled reduction; its effective date covers gifts made after December 31, 2025. The tax above the exemption is at a top rate of 40% (26 U.S.C. 2001(c)). Our estate tax exemption guide has the full rules, portability and state taxes.

So a QPRT works differently on either side of that line (our arithmetic, assumed numbers: a house worth $2,000,000 now, an assumed 3% a year growth, a 10-year term, a 65-year-old grantor who survives, and a purchase basis of $600,000):

The statutes behind the table: section 1015(a) says that for property acquired by gift “the basis shall be the same as it would be in the hands of the donor or the last preceding owner by whom it was not acquired by gift”; section 1014(b)(9) covers what is in a decedent’s estate. The 20% is the top rate in 26 U.S.C. 1(h)(1)(D) and the 3.8% is the tax of 26 U.S.C. 1411(a)(1) on net investment income; whether the children would owe either depends on their income and on whether they sell (our reading). State income tax is extra. The comparison to read: above the exemption, the estate tax saved ($694,089 here) exceeds the income tax the carryover basis could cost ($496,904 at the highest federal rates, and only if the children sell). Below it, the saving is zero and the cost is not (our arithmetic, assumed numbers). Our step-up in basis guide has the rest of the basis rules.

Two cautions on that comparison. The estate tax saving exists only if the estate is still above the exemption when the grantor dies, which depends on future law (the exemption is indexed from 2027 and Congress can change it) and on the other assets. And some states tax estates at much lower thresholds than the federal one, which can change the answer for a house in a state with its own estate tax (our reading; the state thresholds as of October 2026 are in our estate tax exemption guide).

How much of an estate is the house? The IRS Statistics of Income table for estate tax returns filed in 2024 gives the personal residence as a line of the gross estate (our arithmetic on the SOI amounts; script and table saved):

For most of the estates that file, the home is a small part of the estate: 4.1% of all gross estate and 7% to 8% for filers below $20 million (IRS SOI Table 1; shares are our arithmetic). The average residence of $2.1 million among returns that reported one is why we use a $2,000,000 house.

Property tax: transferring a house to a trust and out of it

The federal rules say nothing about the county assessor, and the assessor can undo the savings. We read California, where a reassessment is the largest cost of moving a long-held home, and Florida’s definition of the term for comparison. Other states differ; this is not a 50-state survey.

California. A “change in ownership” is “a transfer of a present interest in real property, including the beneficial use thereof, the value of which is substantially equal to the value of the fee interest” (Revenue and Taxation Code section 60). Two exclusions bear on a QPRT, in section 62:

• Going in: change in ownership does not include “Any transfer by the trustor … into a trust for so long as (1) the transferor is the present beneficiary of the trust” (section 62(d)). In a QPRT the grantor is the present beneficiary during the term, so the transfer into the trust is not a reassessment event (our reading).
• Coming out: section 62(e) excludes a transfer that reserves to the transferor an estate for years or for life, “However, the termination of such an estate for years or estate for life shall constitute a change in ownership, except as provided in subdivision (d) and in Section 63.” When the term ends and the house passes to the children, that is the change in ownership, and the house is reassessed to market value unless an exclusion applies (our reading). Section 62(d) also excludes the “creation or termination of a trust in which the trustor retains the reversion and in which the interest of others does not exceed 12 years duration”; whether a QPRT’s remainder interest fits that clause is a question for a California attorney, because the children’s interest in a QPRT begins at the end of the term (our reading).

The parent-child exclusion (section 63.2, the Proposition 19 rules, as amended effective January 1, 2026) can apply at the end of the term, but only on its conditions. The transfer between parents and children is excluded for a family home, with the requirement that “The transfer is required to be of a principal residence of the transferor, and become the principal residence of the transferee within one year of the transfer” (63.2(a)(1)(A)). A “family home” is “a dwelling that is eligible for a homeowners’ exemption or a disabled veterans’ exemption as a result of the transferor’s ownership and occupation of the dwelling” (63.2(e)(5)), and “transfer” includes “any transfer of the present beneficial ownership of property from an eligible transferor to an eligible transferee through the medium of an inter vivos or testamentary trust” (63.2(e)(9)). Our reading of how that meets a QPRT: the exclusion needs the house to be the transferor’s principal residence and to become a child’s principal residence within a year, and a claim must be filed. A vacation house, a house the child does not move into, or a house the parent leases after the term is outside it. If the exclusion applies, the new taxable value adds to the old value only the amount by which market value exceeds the old taxable value plus $1,000,000 (63.2(d)); the statute’s figure is $1,000,000.

Florida. The homestead cap is lost on a “change of ownership”, defined as “any sale, foreclosure, or transfer of legal title or beneficial title in equity to any person” with listed exceptions (Florida Statutes section 193.155(3)(a)). The exceptions in that paragraph cover correcting an error, adding co-owners while the same person keeps the exemption, transfers between spouses, transfers by operation of law to a surviving spouse or minor child, transfers at death to a dependent, and surviving joint tenants; none names a trust for children, and we did not find a Florida provision addressing a QPRT (our reading; not verified with a county property appraiser).

The practical point (our reading): in a state that reassesses on a transfer to children, the property-tax cost of the QPRT arrives when the term ends, and the estate-tax saving is realized only years later at death. Compare the two before the trust is signed.

What IRS gift data show about QPRTs

The IRS Statistics of Income (SOI) Division samples Form 709, the gift tax return, and some of its studies list gifts made through QPRTs. We read the SOI gift studies for 2007, 2008, 2009 and 2010-2016. QPRTs are named in three of them:

Reading it (our reading): QPRTs are a small share of all gifts in a normal year and spike when donors expect the exemption to fall, as in 2012; the SOI article’s own explanation includes locking in low home values after the recession while using a small part of the larger exemption. The 2025 law removed the scheduled reduction (Public Law 119-21 section 70106), so the pressure that produced 2012 does not apply in the same way for 2026 (our reading). We found no SOI table naming QPRTs for gift years after 2016. The latest gift tax table we read, Table 1 for returns filed in 2021, counts 250,827 returns with total gifts of $182.58 billion, of which 1,813 returns (0.7%) owed gift tax, and it has no row for trusts or real estate; the 2010-2016 study reports that real estate was the third-most common type of gift every year. Nearly all Form 709 filers pay no gift tax (249,014 of the 250,827 returns were nontaxable): they use up part of the exemption instead (our arithmetic on SOI Table 1).

Verdict: who a QPRT is built for, and who it is not

Read from the rules above, a QPRT is built for a narrow set of facts (our reading): a house worth a good deal more than the discount the table gives; a grantor young and healthy enough to outlast a term of several years; an estate above the $15,000,000 exemption now (or one that could get there), or in a state with its own lower estate tax; children who will keep the house or be able to take on its taxes; and a grantor willing to lose the step-up in basis and either move out or pay rent when the term ends.

It is a poor fit where the estate is comfortably under the exemption (the saving is zero and the carryover basis is a cost), where the grantor is old or unwell (the term may outlast the grantor and the house returns to the estate with the legal fees spent), where the house is the only place the grantor can live and moving or renting is not an option, where the property is in a state that reassesses on the transfer to children, or where the family has not decided who gets the house, since the trust is irrevocable and the term fixes the date it leaves your control (our reading).

A QPRT has two professionals in it. An estate-planning attorney drafts the trust, because the instrument must contain each provision of 25.2702-5(c) and fixing a mistake has a 90-day clock; a CPA values the gift with a qualified appraisal, files Form 709 and tracks the basis the children will inherit. The match below is to financial advisers who can look at the whole picture (the rest of the estate, liquidity, the decision to give or keep); it does not replace the lawyer or the CPA.

What a homeowner can do with this

• Get the house appraised, in writing, before any figure is used. The Form 709 needs a qualified appraisal or a detailed description of the method (Instructions for Form 709), and the discount scales with the value.
• Ask the attorney to show the draft against each paragraph of 25.2702-5(c): income, no distributions of principal, no other assets, no commutation, no sale to you, the cessation and 30-day clauses, and the death-in-term clause.
• Ask what happens at the end of the term in writing: who owns the house, whether you will rent it, at what rent, and who pays the property tax and insurance.
• Ask the CPA for the carryover basis today and for the income tax the children would owe at the highest federal rates if they sold, next to the estate tax the plan is meant to save.
• Ask how the gift is valued in the month of the transfer: the Section 7520 rate has no look-back for a QPRT, so the month the trust is funded fixes the factor.
• If the property is in California, ask the assessor’s office how a transfer at the end of the term would be treated and whether the parent-child exclusion could apply, before the trust is signed.
• Check the mortgage. Whether a transfer to a trust triggers a due-on-sale clause is a question for the lender, not a tax question; we did not read the federal rule on it for this page.

FAQ

Sources, read and saved on October 13, 2026: 26 U.S.C. 1, 280A, 1014, 1015, 1411, 2001, 2036, 2702 and 7520 (United States Code 2024 edition, govinfo.gov); 26 CFR 20.2031-7, 20.2036-1, 25.2512-5, 25.2702-1 and 25.2702-5 (eCFR, current to October 7, 2026); Public Law 119-21 section 70106 (govinfo.gov); Rev. Proc. 2025-32 and Rev. Rul. 2026-19 (irs.gov); the IRS Section 7520 interest rates page (last updated September 25, 2026); IRS actuarial Table B, Table S and Table 2010CM (irs.gov, xlsx); IRS Statistics of Income estate tax Table 1 for returns filed in 2024, gift tax Table 1 for returns filed in 2021, and the SOI Bulletin gift studies for 2007, 2009 and 2010-2016; Instructions for Form 709 (2025); California Revenue and Taxation Code sections 60, 62 and 63.2 (leginfo.legislature.ca.gov, read in a browser); Florida Statutes section 193.155 (leg.state.fl.us). Table and rate figures are the IRS’s; gifts, ratios, sums and every dollar figure in the worked examples are our arithmetic on assumed numbers, with the script saved; interpretations marked “our reading” are ours. This is analysis of public documents, not investment, legal or tax advice.