Selling your house to a family member sounds relatively simple. You don't need to worry about finding a buyer or paying realtor fees — 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 you decide to list on the open market instead of selling to a family member, or just want an agent to guide everyone through the process, Clever can help! Clever is a free service that matches you with handpicked agents from trusted brokerages like RE/MAX and Keller Williams.
Clever also negotiates low commission rates of just $3,000 or 1%, so you can sell your house with a top local realtor — and get incredible savings, too!
Or, read on to learn how to make gifting or selling your house to a family member as easy and hassle-free as possible.
Can you sell a house to a family member?
Yes, 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.
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.
It's also a good idea to find a real estate lawyer to manage the paperwork. Some sellers even hire a realtor 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.
Is it illegal to sell your house to a family member?
It is only illegal to sell your home to a 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 real estate 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 2021, 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 $11.7 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 $11.7 million (or $23.4 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 $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.
Selling your home and not sure where to start?
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.
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.