Mortgages & Home Loans Real Estate Resources Selling Your Home The Tax Implications of Selling Your Home to Your Kids for a Dollar A gift tax, estate tax, or even capital gains tax could come due By Patti Spencer Patti Spencer Facebook Twitter Website Patti Spencer is an expert on estate planning, probate, trusts, and taxation issues. She is an attorney, speaker, and author of two books on estate and taxation issues. Patti attended Boston University School of Law and earned her bachelor's degree from Dickinson College in Carlisle, Pennsylvania. learn about our editorial policies Updated on December 6, 2021 Reviewed by Somer G. Anderson Reviewed by Somer G. Anderson Somer G. Anderson is CPA, doctor of accounting, and an accounting and finance professor who has been working in the accounting and finance industries for more than 20 years. Her expertise covers a wide range of accounting, corporate finance, taxes, lending, and personal finance areas. learn about our financial review board Fact checked by Emily Ernsberger Fact checked by Emily Ernsberger Twitter Emily Ernsberger is a fact-checker and award-winning former newspaper reporter with experience covering local government and court cases. She also served as an editor for a weekly print publication. Her stint as a legal assistant at a law firm equipped her to track down legal, policy and financial information. learn about our editorial policies In This Article View All In This Article Gift Tax vs. Estate Tax You Don't Use the Property Post-Sale The Recipient Sells the Property You Continue to Use the Property You Rent the Home Instead Frequently Asked Questions (FAQs) Photo: Morsa Images / Getty Images Can you sell your house to your child for a dollar? The short answer is yes. You can sell property to anyone you like at any price if you own it. But do you really want to? The Internal Revenue Service (IRS) takes the position that you're making a $199,999 gift if you sell for $1 and the home's fair market value is $200,000, even if you sell to your child. You could owe a federal gift tax on that amount. Gift Tax vs. Estate Tax You might think that "selling" your home to your child will help you avoid estate taxes down the road at the time of your death, but the IRS is a step ahead of you. The federal estate tax and the gift tax go hand in hand. The major difference between them is your timing. When are you transferring ownership of assets? You can pay a gift tax on the transfer now, or your estate can pay an estate tax later. Both taxes share the same federal exemption from taxation at the end of the day. Whether you'll actually have to pay a tax depends on the extent of your assets and how generous you are over the course of your lifetime. If You Don't Use the Property Post-Sale Let’s say that you sell your $200,000 home to your child for $1 and you no longer use or occupy the property. The remaining $199,999 doesn't escape federal taxation because the IRS treats the $199,999 uncompensated value as a gift. The tax code provides for a $16,000 gift tax annual exclusion as of 2022 (up from $15,000 in 2021), per person per year, so that $199,999 gift is reduced to $183,999. You don't have to pay the tax on the first $16,000, but now you have a choice to make. You can pay the gift tax on that amount in the year you make the gift, or you can apply that $183,999 to your lifetime exemption. This exemption is $12.06 million as of 2022, up from $11.7 million in 2021. You can give that much away one way or another—during your lifetime or from your estate after your death—without incurring either a gift or an estate tax. Note The annual exclusion and the lifetime exemption are both indexed for inflation, so they can increase somewhat from year to year. But the annual exclusion can only increase in $1,000 increments, and this doesn't necessarily happen annually. Twelve-plus million is a lot of exemption, but here's where it gets tricky. This lifetime exemption covers both the gift tax and the estate tax. So assuming you decide to kick that $183,999 over to your lifetime exemption, you now have only $11,876,001 left of the $12.06 million exemption to shield your estate from taxation when you die. Most people don't have to worry about this because the exemption is so significant, but this might not be the case at the state level. Twelve states and the District of Columbia impose an estate tax, and some of their exemptions are much less. It's just $1 million in Massachusetts as of 2020. Connecticut and New York have some form of a gift tax and estate tax as well. What If the Recipient Sells the Property? Your child inherits your tax basis—basically what you paid for the property—when you transfer it to them as a gift during your lifetime. If they turn around and sell the house for its $200,000 value, but you only paid $50,000 for the property way back when, they must report and pay tax on a $150,0000 capital gain, the sales price less your basis. But there's a "step up" in basis if you hold onto the property and transfer it to a beneficiary as part of your estate. Your child's basis becomes the property's date-of-death value in this case. There's no capital gain and no capital gains tax due if your child sells the house for $200,000 and that's its fair market value. If You Continue to Use the Property The picture changes if you continue to use and occupy the house after having made the sale for $1. Your continued occupancy of the residence causes the whole value of the property to be included in your gross estate and subject to estate tax. The IRS takes the position that your continued occupancy of the property was part of the deal. In other words, there was an understanding between you and your child that went something like this: "I will sell you my house for $1, but you will let me live there as long as I want." Tax authorities have successfully maintained that such an agreement exists, even if it's not in writing, because that's exactly what happened. That’s still not necessarily a terrible result, however, because there's that $12.06 million lifetime exemption waiting in the wings to take care of things. You Rent the Home Instead Some folks think that paying rent is the answer, but this won’t help, either. The general rule is that when any property is transferred during your lifetime, and if you retain the income from the property or the use and occupancy of the property, the full value of the transferred property is included in your estate. But there's an exception if the transfer of the property is made for full value—the transfer was a sale and you received other property or cash equal to the fair market value of the property. Unfortunately, paying rent isn't full value for the transfer. It may be fair value for the use and occupancy of the dwelling, but that doesn’t address the estate tax question unless you pay your son the entire $200,000. Note Some estate planning techniques involve changing the title to personal residences. Make sure you receive sound advice from an expert before you do this or attempt any do-it-yourself estate planning. The information contained in this article is not intended as tax advice and it is not a substitute for tax advice. Frequently Asked Questions (FAQs) How do you transfer property to a family member quickly? Transferring property to a family member is a relatively simple process, but it doesn't hurt to consult a local real estate attorney to ensure you're following the correct procedure. You'll generally have to fill out a deed form that includes the grantor's and grantee's names (the person who owns the home and the person receiving the property), along with other details about the property. The deed form must be notarized and filed with the appropriate local offices. Do you need title insurance when you're buying a house from a family member? Your lender will likely require title insurance if you're using a home loan to buy a house from a family member. Title insurance is a good idea even if you're not using a mortgage. It ensures that the home is free and clear from any liens or other restrictions on the title. Even if you trust your family member, there could be claims on the home that they're not aware of. Getting title insurance helps protect you. Was this page helpful? Thanks for your feedback! Tell us why! Other Submit Sources The Balance uses only high-quality sources, including peer-reviewed studies, to support the facts within our articles. Read our editorial process to learn more about how we fact-check and keep our content accurate, reliable, and trustworthy. Internal Revenue Service. "Gift Tax." Internal Revenue Service. "Instructions for Form 706." Internal Revenue Service. “IRS Provides Tax Inflation Adjustments for Tax Year 2022.” Internal Revenue Service. "Estate Tax." Massachusetts Department of Revenue. "Estate Tax." Connecticut State Department of Revenue Services. "Connecticut Gift Tax." New York State Department of Taxation and Finance. "Estate Tax." Internal Revenue Service. "What If I Sell Property That Has Been Given to Me?" Internal Revenue Service. "What Happens If I Sell Property That I Have Inherited?" Internal Revenue Service. "Gifts & Inheritances." U.S. Government Publishing Office. "§2036. Transfers With Retained Life Estate." Internal Revenue Service. "What Is the Basis of Property Received as a Gift?" Internal Revenue Service. "What Is 'Fair Market Value'?"