Updated August 6th, 2019
You can sell your home to a family member, but it adds complications to the process.
Selling your home to a family member is a great way to simplify the process of finding a buyer, but it adds a few additional elements to the mix.
There is high potential for family feuds, so lay out the rules in advance and enlist the help of a local, experienced real estate agent to make sure things go smoothly and your relationship stays intact. They'll be able to help you navigate this process more easily and address any concerns.
Here's what you need to know if you're thinking about selling your home to a family member.
Can you sell a house to a family member?
You can absolutely sell a home to a relative. Plus, you can avoid the time- and money-intensive process of finding a buyer. There's a disclaimer here though. If you've ever lent any money to a family member, owned a business with a relative, or even shared an apartment as roommates, you know it's not always easy. It's hard to have frank conversations with those we love, especially when it comes to money.
Because of this, make sure you call in a real estate agent and a good lawyer to help you through the process and make sure everyone is on the same page. You'll want an agent to perform a home appraisal or comparative market analysis (CMA) to give a ballpark value of what your home is worth.
Have this done early in the negotiations with your family member so you can reach a sale price that works for both of you. The last thing you want is to find out about a miscommunication on price or terms at closing.
Is it illegal to sell your house to a family member?
It is only illegal to sell your home to relative if you're doing so to avoid taxes - and doing that illegally. Plus, if you're selling for an extreme discount, you may be subject to an estate and gift tax, anyway. Otherwise, selling a home to a family member is just like selling your home to any other buyer.
How do you transfer a property title?
There are several ways to transfer the title of your home to a family member:
- Special Warranty Deed Transfer - This type protects your family member from any property issues or claims that you have had while owning the home
- General Warranty Deed Transfer - Ensures all your property rights are transferred to your family member and legally ensures both of your past or future actions against the property.
- Quitclaim Deed Transfer - A quitclaim deed only transfers your property interest to your relative, but does not protect them from any legal claims.
When transferring your property title you'll want to be sure to consult a lawyer. As you can see, there are nuances to each way to transfer and which one is best depends on your specific situation, and the tax implications of each. Depending on the value of the property, either or both you and your relative may be required to pay gift or capital gains taxes.
How much does it cost to transfer a property title?
The cost of transferring title depends on the method used and if you hire a professional to help. The transfer tax or fee you pay to the county or state is typically dependent on the value of the home and the pages in the document, but it relatively minimal.
You can usually file the necessary documents yourself with the help of a notary, but you run the risk of doing it incorrectly and running into major issues down the line. For instance, a transfer could void your title insurance, cause the full amount of your mortgage to be due immediately, or other unanticipated tricky issues.
While fees may not be much for the actual transfer, there are other costs to consider if transferring ownership to a family member, such as estate and gift tax, and future capital gains taxes your relative may be on the hook for.
Can a house be gifted to a family member?
Of course you can gift a home to a family member, but let's always consider Uncle Sam. As of 2019, you can gift $15,000 to as many people as you want annually without paying a gift tax, as long as you don't exceed your unified federal gift and estate tax exemption of $11.4 million total over your lifetime. The exception is if you are gifting to your spouse - then the gift is free of taxes.
So, if you and your spouse gift your $200,000 home to your son and daughter-in-law, you could each gift $15,000 annually to each person. While you would need to file a gift tax return on the remaining $140,000 (we subtracted $15,000 x 2 x 2), you could make this gift tax-free, unless you have made substantial gifts throughout your lifetime. The $140,000 would count toward your lifetime estate and gift tax exclusion of $11.4 million (or $22.8 million for you and your spouse together).
When gifting a home to a family member, also consider their future capital gains tax liability. Unless they live in the home as their primary residence for two years first, when they sell the home, the original price you paid becomes the recipient's tax basis.
If you paid $100,000 for a home 30 years ago, gift it to your daughter, and she immediately sells it for a $400,000, her capital gains would be $300,000. Since you are allowed an exclusion of $250,000, she would need to pay capital gains tax on $50,000.
On the other hand, if you waited until your death for your child to inherit the property, the cost basis would be the “stepped-up basis,” or the value of the property on the date of your death. If your child immediately sold the property for that value, they would not be subject to capital gains tax at all.
Do you need a lawyer if you sell a home to a family member?
While you don't have to use a lawyer to sell a home to a relative, it's highly recommended you do so. As with any legal issues, things can go south quickly over small miscommunications or misfiled paperwork. Choosing one form over another could have huge implications on taxes or legal issues. A lawyer will make sure everything is laid out in writing and can help to avoid any future legal battles or unanticipated expenses.
Do you have to pay capital gains taxes on a home you sell to family?
Regardless of whether you sell your home to a family member or anyone else, it is unlikely you will have to pay capital gains taxes. The IRS calculates capital gains as the difference between the price you paid for the home - its cost basis - and the price you eventually sell it for.
If you bought a home 20 years ago for $100,000 and recently sold it to a family member for $200,000, your capital gain would be $100,000. The IRS allows an exclusion of $250,000 of capital gains on real estate if you're single, and $500,000 if you're married. Regardless of whether you're married or not, your capital gain falls below both amounts, so you would not need to pay capital gains tax.
What's the best way to save money when selling your house to family?
You can save a lot in potential taxes or financial burdens by consulting a professional before you venture down the road of selling your home to a family member. What may seem like a good deal for both parties could actually be skewed heavily in one direction because of future tax implications or fees.
Since your sale is also pretty straightforward, you can save money on closing costs by using a flat fee real estate agent. Clever Partner Agents are top-rated real estate agents from major brands - like Keller Williams or Century 21 - who are experts in their local markets.
Partner Agents offer the same full service as other agents, the only difference is that they have agreed to work for aflat fee of $3,000, or 1% if your home sells for more than $350,000. This keeps more money in the hands of those you love.
Top FAQs About Selling Your House to a Family Member
Can you sell a house to a family member for $1?
You can. And it works similarly to gifting your home to a relative. But, it may end up costing you if you're too generous. Since the IRS sees any discount you give a family member below market value as a gift, you may have to pay gift tax on the amount. As of 2019, you can gift $15,000 to as many people as you want annually without paying a gift tax, as long as you don't exceed your unified federal gift and estate tax exemption of $11.4 million total over your lifetime.
Can parents gift a house to their child?
Parents can gift a home to their child, but they may be subject to estate and gift tax. If the home is worth less than $30,000 (each person is allowed a $15,000 gift exemption) or if the parents have not made gifts exceeding $22.8 million over their lifetime, the tax would be waived.
However, the child may be subject to future capital gains if they don't live in the home for at least two years before selling. This is because the IRS calculates the cost basis as the amount the parents paid for the property.
Can you buy a house from your parents for less than market value?
While your parents are able to sell you their home for a lower price than market value, that discount may be subject to the estate and gift tax depending on the amount and their lifetime giving habits.
As of 2019, you and your spouse can each gift $15,000 to an individual annually without paying a gift tax, as long as you don't exceed your unified federal gift and estate tax exemption of $11.4 million total over your lifetime ($22.8 million between the two of you.) So, if your parents sell their home to you for $30,000 under its value, you're in the clear. If the discount is over this amount, but your parents have not made substantial donations over their lifetimes, the gift also will not be subject to the gift tax.
