Are There Tax Implications of Selling a House Below Market Value?
Thinking of selling your home to a family member or close friend for less than it’s worth? You’re not alone. Many homeowners today wonder if they can sell their house below market value — whether it’s to help their kids get started, pass along property without a big fuss, or simply keep a beloved home “in the family.”
But here’s the catch: selling a house below market value does come with its own set of tax implications. So before you set that bargain-basement price, here’s what you need to know!
Why Would Someone Sell Below Market Value?
Selling at a discount usually happens within the context of family dynamics. Some examples?:
- Parents wanting to help their children buy their first home.
- A homeowner opting for a quick, private sale to a sibling rather than listing on the open market.
- Someone hoping to keep a home in the family for sentimental reasons.
On the surface, it may feel simple — all you have to do is agree on a low price and transfer the deed. But from a tax perspective, things can get a little more complicated.
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Can I Sell My House to My Son Below Market Value?
You can — but the IRS will likely treat the difference between the home’s fair market value and the actual sale price as a gift.
For example, if your home is worth $300,000 and you sell it to your son for $200,000, that $100,000 “discount” is considered a gift. What does that mean for you? You’ll need to file a gift tax return (Form 709) to report it, even if you don’t owe any tax right away, thanks to the lifetime gift and estate tax exemption.
Can You Sell a House for $1?
Technically, yes — but it doesn’t mean you avoid taxes. Selling a home to a family member for $1 is essentially the same as gifting them the property. The IRS will look at the fair market value of the home, not the token $1 price, to determine the taxable amount.
So while it may sound like a creative workaround, it’s really just another way of transferring a gift, which brings us right back to gift tax rules.
Tax Implications of Selling a House to a Family Member
Here’s what to keep in mind if you’re considering this type of sale:
- Gift tax rules apply if you sell below market value.
- Annual gift exclusions let you give up to $19,000 per person (2025) without eating into your lifetime exemption. Anything above that counts toward your lifetime limit.
- The buyer (your family member) won’t owe income tax on the “gift” itself — but their cost basis in the property will be the fair market value, which matters when they eventually sell.
Need more advice on selling your home? Check out these blogs next!
- Is Selling Without a Realtor a Good Idea?
- Do You Have To Renovate Your Home Before Selling It?
- Open House vs. Private Showing: Which Is Better for Selling Your Home?
Capital Gains Tax on Gifted Property
If the family member you sell (or gift) to decides to sell the home later, capital gains tax becomes an issue. Why? Because their taxable gain will be based on the home’s original cost basis — not the discounted price they paid.
That means if you bought the house decades ago for $100,000, sell it to your daughter for $1, and she later sells it for $400,000 — she could face capital gains tax on $300,000, not just the “profit” from her $1 purchase.
The Bottom Line
Selling a house below market value — whether to your son, your sibling, or even for $1 — may seem like a generous move, but it comes with strings attached. Gift tax rules, capital gains implications, and reporting requirements all come into play.
If you’re considering this course of action, it’s worth talking to both a real estate professional and a tax advisor to make sure your generosity doesn’t create an unexpected tax headache down the road.
Thinking about buying or selling this fall? Let’s talk — our team will be there for you every step of the way. Reach us at 202.280.2060 or email jsmira@jennsmira.com.
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