How to Sell a House to a Family Member [Legally]

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By Jamie Ayers Updated May 1, 2024
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Edited by Steve Nicastro

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Selling your house to a family member sounds relatively simple. You don't need to worry about finding a buyer or paying real estate agent commission — you just need to sign some papers and have them write you a check.

But, real estate transactions — even with family — are complicated. Transferring a property title always carries the risk that you'll encounter unexpected legal issues.

Just as importantly, there could be tax implications if you sell to a family member below market value. You won't fool the IRS by selling your house for $1 to avoid the gift tax!

If the notion of handling the sale on your own seems daunting, you can always consider working with a realtor. An agent can help you navigate tax, legal, and other matters involved in the transaction. Clever Real Estate simplifies the process by connecting you with agents and negotiating reduced rates on your behalf — for free.

» Get in touch to learn more and get connected with top agents near you

Can you sell a house to a family member?

Yes, you can absolutely sell a house to a relative. This lets you avoid the time- and money-intensive process of finding a buyer. There's a disclaimer here, though. If you've ever lent 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 relatives, especially when it comes to money.

To avoid unnecessary family drama, treat the sale like any other for sale by owner (FSBO) transaction. Put your contract in writing, with clear details on a sale price, who's responsible for closing costs, and so on.

Some sellers hire a real estate agent or transaction coordinator to help them navigate the sale process and mediate any conflicts that arise.

Even if you plan to oversee the sale process yourself, you should ask an experienced local realtor for a comparative market analysis (CMA) before you and your buyer set a sale price. A CMA is an objective assessment of what your home is worth. Getting a home valuation up front helps you and your buyer negotiate a fair sale price and avoid issues with a mortgage lender.

It's also useful to have a CMA on hand in case the IRS asks for proof that you weren't trying to avoid gift or capital gains taxes by selling your house below market value. The IRS defines a gift as any transfer to an individual, whether direct or indirect, where no full consideration, measured in money or money's worth, is received in return.[1]

👋 Avoid this mistake when selling to a family member

One of the biggest mistakes you can make when selling your house to a family member is failing to get a professional home valuation.

Fill out the form below to get a free comparative market analysis (CMA). Clever will match you with a trustworthy local agent, who will prepare an objective assessment of your home's fair market value, at no cost to you.

This service is free and comes with no obligation. But, if you change your mind and decide to list your house on the open market, you can sell with your agent for discounted 1.5% listing fee.

Selling a house to a family member vs. traditional sale

The key difference between selling a house to a family member and selling to someone else is that the home may sell for a price other than fair market value, because you might work with the buyer to give them a deal or gain a deal for yourself.

Selling to a family member is what’s known as a controlled transaction, while traditional sales are called arm’s length transactions.

  • Controlled transaction: The buyer and seller have a relationship, for example, as family, friends or co-workers. Controlled transactions are subject to greater scrutiny from the IRS, may incur the gift tax if you sell the property below fair market value, and often cost less in realtor fees.[2]
  • Arm’s length transaction: The buyer and seller are strangers, and each acts in their own financial self-interest. Most real estate sales are this kind of transaction, and they’re typically facilitated through a seller agent and buyer agent, who connect the buyer and seller.

How to sell a house to a family member

Follow these steps to sell your house to a family member.

1. Decide whether to use an agent or not

When you sell your house, you can list with a real estate agent or sell your house without a realtor. Work with your family member to determine how you want the process to go.

You might be tempted to handle the process on your own, but note that selling a house to a family member might not be as simple as it seems. There are legal, financial, and tax implications to consider, and working with a professional could help you keep everything fair, legal, and above board.

Decide with the buyer whether you want to hire professionals to guide you through the process, and decide ahead of time who will pay for those services.

If you’re selling to a family member below market value, you may already be losing money (or forgoing profit) on the sale, so it could be tempting to avoid hiring an agent.

But selling to a relative can be more complex than it seems. A realtor can provide important support, like managing all the paperwork and keeping track of legal considerations.

2. Choose a selling price

Decide whether to gift the home, sell it at a discount, or at fair market value. Discuss and agree on this with the buyer beforehand to avoid misunderstandings.

Gifting the home can transfer significant value to a family member but may lead to emotional issues or future conflicts, so clarify the terms thoroughly before proceeding. Alternatively, selling the home at or below market value can help cover any mortgage balances, selling costs, or provide a modest profit while easing the purchase for your family member.

A real estate agent can help you determine what the IRS would consider fair market value for your home through a CMA report - an objective assessment of what your home is worth. This valuation is essential for negotiating a fair price and proving to the IRS that the sale price was not set to avoid taxes.

Selling at market value treats the transaction like any standard sale with usual tax consequences while selling below market value might attract gift taxes and future capital gains taxes for the buyer.

If you sell at fair market value, tax implications for you and the buyer are the same as if this were an arm’s length transaction. If you sell below fair market value, you could be subject to a gift tax if you’ve given significant gifts to the buyer in your lifetime. The buyer could also be responsible for capital gains tax when they sell the house, depending on how they use it.

» Need help? Clever can connect you with an agent who can help you sort out tax implications when selling to relatives, or point you toward tax professionals who can help. Simply enter your zip code here to get started.

3. Determine financing

Depending on the amount of the sale, the buyer might need to figure out a payment plan. They might be able to pay you in cash, take out a mortgage, or work with you to set up seller financing.

Seller financing is a way for you to lend the money to the buyer (or, in effect, lend the home) and set up a repayment agreement between you, without involving a bank loan. You can determine an interest rate and payment plan that works for the buyer, and the buyer won’t be subject to traditional underwriting and potential rejection.

The IRS might consider a low-interest or interest-free home loan as a gift, so work with a tax professional to determine the buyer’s tax liability based on the financing you choose.

If you still have a subsidized mortgage on your home, like an FHA loan, VA loan, or USDA loan, ask your lender if you can transfer the mortgage with the home sale. That could be a way for the buyer to assume payments on the debt without incurring new lending fees, like origination fees. But they’ll still likely have to go through a credit check with the lender and be approved to take over the loan.

4. Transfer your property title

There are several ways to transfer the title of your house to a family member:

  • Special Warranty Deed Transfer: This type of transfer protects your family member from any property issues or claims you’ve had while owning the home.
  • General Warranty Deed Transfer: Ensures all your property rights are transferred to your family member and guarantees them against any title issues that arise, whether during or before the time you owned 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.

Consult with a real estate lawyer to transfer your property title. There are nuances to each way to transfer, and which is best depends on your circumstances.

How you transfer the title also determines the cost. You’ll typically pay fees for the real estate attorney you hire, plus a transfer tax or fee to your county or state based on the value of the home.

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 bring about other unanticipated tricky issues.

» LEARN: How much does a real estate lawyer cost?

Can a house be gifted to a family member?

Yes, you can always gift a house to a family member without charging for the sale. That gift could be subject to taxes based on the home’s value and your history of such gifts.

Gift tax

As of the 2024 tax year, the IRS says you can gift $18,000 in cash or equivalent value each year to as many people as you want without paying a gift tax, as long as you don't exceed your lifetime federal gift and estate tax exemption of $13.61 million (as of 2024) in total gifts. The exception is if you're gifting to your spouse — those gifts are free of taxes, regardless of the value.

If you and your spouse decide to gift your $200,000 home to your son and daughter-in-law, you could each utilize the annual gift exclusion of $18,000 per person. This means you could each exclude $18,000 from the total value of the gift, leaving $164,000 of the home's value to be reported.

To account for the remaining $164,000, you would need to file a gift tax return. This amount can then be applied toward your lifetime estate and gift tax exclusion, which is $13.61 million per individual as of 2024.

Capital gains tax

When gifting a home to a family member, also consider their future capital gains tax liability. If they intend to sell the home or use it for anything other than their primary residence, the home could incur capital gains taxes.

Here’s an example: If you paid $100,000 for a house 30 years ago, gifted it to a family member, and they immediately sold it for a $400,000, their capital gains would be $300,000, because the IRS uses the last purchase of the home as a basis to determine the increased value.[3] They’re allowed an exclusion, but they would need to pay capital gains tax on the remainder of their gain.

That’s different from how capital gains are treated on property inherited upon your death. The IRS determines the value on a "stepped-up basis," which would more closely resemble the current market value. An heir could sell the house for that price without incurring capital gains tax. Note that these rules apply to real estate, but don't apply to any retirement assets such as 401(k) plans or IRAs.[4]

» MORE: How to sell an inherited house fast

Do you have to pay capital gains taxes on a house you sell to family?

Regardless of whether you sell your home to a family member or anyone else, it is unlikely you’ll owe 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.

However, the IRS allows an exclusion of $250,000 of capital gains on real estate if you're single, and $500,000 for a married couple filing together, as long as you lived in the home at least two years out of the five years prior to its date of sale.[5]

Do you need a lawyer if you sell a house to a family member?

You don't have to use a lawyer to sell a home to a relative, but it's highly recommended. As with any legal (and family) 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 you avoid future legal battles or unanticipated expenses.

You can save a lot in potential taxes or costs by consulting a professional before you venture down the road of selling your home to a family member.

👋 Get free advice from a licensed expert

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Our fully licensed Concierge Team is standing by to answer questions and provide free, objective advice on how to get the best outcome with your sale or purchase.

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Give us a call at 1-833-2-CLEVER or enter your basic info below. Our Concierge Team will be in touch shortly to help.

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FAQ

Is it illegal to sell your house to a family member?

It’s not illegal to sell a house to a family member, but it’s illegal to take any fraudulent action to avoid taxes on the sale. You have to properly report a home’s fair market value and sale price, as well as any relevant conditions of seller financing, to ensure the IRS has an accurate record of the taxable value the buyer received.

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 2024, you can gift $18,000 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 $13.61 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 $18,000 gift exemption) or if the parents have not made gifts exceeding $27.22 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 2024, you and your spouse can each gift $18,000 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 $13.61 million total over your lifetime ($27.22 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.

What are the risks of selling a house to a family member?

Be prepared for legal, tax and personal risks when you sell a house to a family member. It’s easy to cut corners, avoid important conversations, and skip official paperwork when you do business with someone close to you. But those all have serious implications. Work with a real estate agent or attorney to make sure you and the buyer agree to a fair selling price and terms, get all the proper paperwork set up for the financial and ownership agreements, and prepare for proper tax reporting.

What are the benefits of selling a house to a family member?

Selling a house to a family member means you don’t have to go through the long process of finding buyers and negotiating an offer for your home. It could also provide a benefit to the family member, who doesn’t have to go through the process of finding a home. You could also both save money on real estate agent fees, even if you work with an agent, because they’ll likely be willing to take a lower commission if they don’t have to find you a buyer.

If you sell the house at below fair market value, gift it and/or work with the buyer to set up seller financing, the buyer could benefit significantly from cost savings and the effort of securing a loan. If they had trouble qualifying for a loan or saving for a down payment, this might even be the only way for them to become a homeowner.

If the house has sentimental value in your family, selling or gifting it to a family member is a way to ensure it continues to provide that value within the family for another generation.

Resources for selling your house to a family member

Article Sources

[1] Internal Revenue Service – "Frequently Asked Questions on Gift Taxes".
[2] Internal Revenue Service – "Gift tax".
[3] Internal Revenue Service – "Property (Basis, Sale of Home, etc.) 3".
[5] Internal Revenue Service – "Topic no. 701, Sale of your home".

Authors & Editorial History

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