How to Sell a House to a Family Member (WITHOUT Drama!)

Q: Can I sell my house to a family member for $1?

You can sell your home for $1 , but you may be required to pay gift taxes. In 2022 you can give up to $16,000 per person during the year without paying the gift tax.

Selling to family vs. traditional home sale | Tax implications | How to sell a house to family | Should you sell a house to a family member? | FAQs

Looking to sell a house to a family member, relative, or friend? We’ve got you covered. Our guide provides expert tips, alerts you to the main risks, and offers some alternatives.

Selling directly to your family without real estate agents can save you time and money by avoiding a public listing – no marketing or listing services are required. You also may get some satisfaction from helping someone you love.

However, selling a house to a family member can also cause problems that probably wouldn’t arise during a traditional sale:

There are major tax implications. The IRS will be watching closely for possible tax evasion. Making a mistake or misinterpreting tax laws can cost you money and put you in trouble with the IRS. Consult with a tax expert before even considering it.
You could permanently damage the relationship with your relative. Disagreements in real estate happen all of the time, whether it’s over price or contract terms. It’s best to only sell your home to a relative you are close with and trust.
You may not sell at a desirable price. Your family member may be expecting to buy your house at a discounted price, so you may not earn as much compared to a traditional sale.

Our guide provides a step-by-step process to selling a house to a family member, the pros and cons, potential tax implications, and alternatives.

Want to sell your home for maximum profit instead? Our friends at Clever Real Estate offer a free service that matches you with top-rated local agents and pre-negotiates big savings on your behalf. Clever’s full-service partner agents will sell your house for just 1.5% commission!

Selling a house to a family member vs. a traditional sale

🔑 Key Takeaways

If you own your home free and clear, you can give it to anyone you want. No money needs to change hands.
If you sell your home to a family member at a discounted price, your relative may be subject to capital gains taxes.
The easiest way to avoid problems with the IRS is to sell your house near fair market value. Use home value estimators for quick estimates, or get a comparative market analysis (CMA) from a local realtor for a more detailed, accurate estimate.
While you don’t need a realtor to sell to a family member, it’s probably a good idea to hire one anyway. A realtor can help with all of the paperwork and your legal requirements.

The biggest difference when you sell your house to a family member is the fact that it’s a controlled transaction, rather than an arms-length transaction.

Controlled transaction. A deal between parties that have a relationship, such as family members, friends, or co-workers.
Arm’s-length transaction. A deal between strangers (most real estate transactions). Each party acts in its own self-interest to get the best deal. For example, a seller would list for a high price, and a buyer would try to pay a low price.

Main differences between controlled and arm’s-length deals

Controlled transactions are less common, and they have a few major differences.

More scrutiny from the IRS

There’s a greater risk of fraud in controlled transactions, according to the IRS. The agency is on the lookout for anyone who sells their home to a relative below market value to manufacture a loss for the sole purpose of avoiding taxes.

Greater tax implications for you and the buyer

If you cut your family member a deal, you may owe gift taxes. Your relatives may be on the hook for capital gains taxes when they decide to sell.

Capital gains taxes can get complicated. We highly recommend consulting with a local tax professional for more guidance.

Reduced commission rate from agents

You may not have to pay the buyer’s agent commission with a controlled transaction, since you already have the buyer lined up.

If you choose to hire an agent to help, you can probably get them to take a lower listing agent commission, since the home isn’t being marketed to the public.

Some sellers choose to sell for sale by owner (FSBO) to family to avoid commission altogether. However, selling without a realtor is complicated and carries many risks, so you may still want to realtor to help with paperwork and negotiations.

Check out our tips on how to find a realtor to help with your home sale.

Risk of family drama

A controlled transaction can cause problems if a family member tries to take advantage of another. Examples include:

Inflating the home’s sale price above its fair market value.
Persuading the buyer to forgo an inspection on a damaged home.
Failure to make contractually obligated repairs.

For example, what if your home has an older roof, and the buyer’s inspection discovers an active leak? The sales contract may require you to fix the leak before closing.

How to avoid the drama

Things can get complicated when reviewing home inspection reports, termite inspections, appraisals, and legal documents.

Our friends at Clever Real Estate can connect you with top agents from trusted brokerages who can provide a fair opinion of value through a CMA report, inform you of the laws in your state, and provide an experienced, objective voice during the sale.

Plus, you’ll receive a range of full-service benefits for just a flat fee of 1.5%. Its realtor-matching services are free, and you can walk away at any time.

Selling a house to family: Possible tax implications

irs-audit-selling-house-to-family-member

Before you gift or sell your house to a family member, you’ll want to know what taxes may apply. The most common two are gift taxes and capital gains taxes.

What is gift tax?

If you give your home to a relative, you may have to pay gift tax.

The gift tax is a levy on the transfer of property when a donor receives nothing, or less than full value, in return. In 2022 you can give up to $16,000 per person during the year without paying the gift tax.

Gifts of more than $16,000 are taxed at a rate of 18–40% depending on how much over the limit you give. The donor is responsible for paying taxes associated with the gift, but there are ways to avoid paying them altogether.

How to avoid paying gift tax

If you don’t want to pay taxes when you sell your house to a family member, you can apply the excess of your gift — anything over $16,000 — toward your lifetime gift and estate tax exemption.

This is the dollar amount individuals can give in cash gifts, real estate, and other assets during their lifetimes before taxes apply. The amount changes yearly depending on inflation and changes to the tax code.

In 2022, the IRS allows individuals to give $12.06 million tax-free over their lifetimes.

Unless you’ve given (or plan to give) more than that amount, you can apply any sum toward your exemption without paying taxes. However, you must file a gift tax return, even if you won’t pay taxes on that gift.

What is capital gains tax?

If you sell your house to family, you may have to pay capital gains taxes on the sale profits.

You probably won’t face capital gains taxes when selling your home to a family member, especially if you’re doing so under market value, given the IRS’ capital gains tax exclusion.

However, gifting or selling your home below market value increases the odds the giftee will face capital gains taxes. That’s because your tax basis — the initial cost of the property — becomes the recipient’s tax basis.

Capital gains tax example

Let’s say you bought your house for $50,000 and gave it to a family member several years later.

If your relative later sells for $400,000, the IRS will calculate the profit as $350,000. Luckily, sellers can deduct the first $250,000 in profit if they’ve lived in the home for more than two years (if filing taxes as single).

But your family member would still be on the hook for taxes on roughly $100,000, with a tax rate of 0–20%. Some states may also charge capital gains taxes.

Sale price – purchase price = profit

$400,000 (sale price) – $50,000 (purchase price) = $350,000 (profit)

Profit – annual exclusion = taxable income

$350,000 (profit) – $250,000 (exclusion) = $100,000 (taxable income)

📚 READ: How Do I Avoid Capital Gains Tax When Selling a House?

One way to minimize your relative’s future capital gains tax is to let your family member inherit the home by leaving it in your will. The inherited property does not face the same taxes as gifted property.

💡 Learn: Selling an Inherited Home: What You Need To Know

How to sell a house to a family member without drama

Looking to avoid disagreements that could cause a rift in your relationship? We recommend following the traditional steps in the home-selling process.

Step 1: Agree on the process

You can sell your house to your family in two main ways — with a real estate agent or on your own.

Although an FSBO sale is possible, selling your home to a relative can be more complicated than it initially seems. A realtor can keep you on track when it may be tempting to cut corners.

It’s important to agree on the process beforehand. Determine if either party should hire an agent or enlist the help of professionals, such as an appraiser, inspector, or real estate attorney.* Specify who will pay for each service.

Before you dive in, consider the pros and cons of an FSBO sale when selling a house to family.

Pros and cons of selling without a realtor
✅ You could save thousands on commission fees. If you're losing money by selling below market value, this could stymie your loss.
✅ If you're selling to family, you already have a buyer. You don't need an agent to list your home on the Multiple Listing Service (MLS), schedule showings, or host an open house.
❌ Negotiating with a family member can get ugly. An agent can help keep the peace.
❌ A FSBO sale involves a lot of paperwork. If you have missing documents, you could experience financial trouble or delay the sale. An agent can keep track of the paperwork for you.
❌ Selling to family involves complex tax and property matters. An agent can help inform you of tax implications.
❌ Selling below market value to a family member may attract the attention of the IRS. An agent can provide a CMA to help you price your home accurately.
❌ You won't have a built-in network. An agent has relationships with appraisers, inspectors, and title companies. Without an agent, you'll have to find those professionals on your own.

If selling FSBO becomes overwhelming, you can hire an agent at any time. With a buyer already lined up, you won’t need an agent’s marketing services and could negotiate a lower commission rate.

Step 2: Think about gifting your home

Depending on your financial situation, you may not need to make money on your home sale. If you own your home free and clear, you can give your home to a family member as a gift. No money needs to change hands.

Gifting your house is a great way to financially help a relative who may not qualify for a loan or have the funds for a down payment and monthly mortgage.

However, keep in mind that once you legally hand over the keys, there’s no going back on your decision, and you lose all control over the asset.

Step 3: Agree on a price

Don’t want to gift your house? You can still sell your home to a family member. You have two options: sell at fair market value or below market value.

Selling at market value may be the simplest choice for tax purposes. It will also give you the most cash to put toward your next home purchase, investment account, college fund, or retirement plan.

If you can’t afford to gift your house, but still want to give your relative a discount, selling below market value may be the right choice for you. Try this option if you’ve attempted to sell on the open market but haven’t closed any deals.

Weigh each option carefully and choose what’s best for your budget and financial goals. You can contact a realtor for a more accurate valuation.

How to sell my house to a relative at fair market value

The easiest way to bypass problems with the IRS is to agree on a price that is close to fair market value.

🤔 What is fair market value?

The IRS defines fair market value as “the price at which a property would change hands between a willing buyer and a willing seller, neither being under any compulsion to buy or to sell and both having reasonable knowledge of relevant facts.”

A real estate agent can help determine market value by performing a CMA, which examines comparable properties that have sold recently in the same neighborhood. An appraisal can also determine what a home is worth. These documents can show market value if the IRS audits the transaction.

Can I sell my house to a family member for $1?

You can sell your home at any price below market value, even $1. But the IRS may consider it a gift, and you might be required to pay gift taxes.

For example, if the fair market value of your home is $300,000, and you sell it for $1, your profit is well over the $15,000 limit for non-taxable gifts. You’ll need to pay taxes on that gift or put it toward your lifetime exemption.

If you’re selling your home to a family member at a discount price, you’ll also want to consider your relative’s capital gains tax liability.

Step 4: Determine finances

If you’re not giving away your house for free, the buyer will need to pay cash or secure financing through a lender.

But not everyone will qualify for a conventional mortgage. In that case, you can help your relative secure financing by providing a private loan or transferring the remainder of your mortgage.

Using seller financing to provide a loan

Sellers financing is when a seller lends a buyer the money needed to purchase a home, eliminating the need for a bank loan.

Consider this option if your family member doesn’t have enough money for a down payment or doesn’t qualify for a conventional mortgage. It may also benefit buyers who are only approved for loans with unfavorable terms, such as high-interest rates, because of poor credit and other factors.

With seller financing, you can offer flexible interest rates and better terms that will help you sell faster and make home-buying more accessible for your family member.

The risks of seller financing

Seller financing can be a great way to help your relative, but it comes with risks. If the buyer stops making payments and won’t leave the property, you might have to initiate the lengthy foreclosure process. That’s a surefire way to make your next family gathering an awkward affair.

The IRS may also consider an interest-free or reduced-interest loan as a gift. The IRS won’t be fooled by a large gift disguised as an interest-free loan in an attempt to bypass gift and estate taxes.

Transferring a mortgage

If allowed, transferring a mortgage can be a great way to pass savings to family members. They won’t have to pay new mortgage costs, such as origination fees, or come up with a down payment.

However, transferring ownership of a home with a mortgage is tricky and may not be possible depending on the terms of your loan. Transfers are typically only allowed if your mortgage is “assumable,” meaning someone else can take over future payments and responsibilities.

Ask your lender if you qualify. Lenders will usually need to evaluate the new borrower’s credit score and debt-to-income ratio before approving the transfer.

In general, some Federal Housing Administration, Veterans Affairs, and U.S. Department of Agriculture loans can be transferred, but most conventional loans are not assumable.

Step 5: Transfer your property title

Every time a home changes hands, the title must be transferred. The title represents ownership rights you have over your property. Titles are transferred through deeds, a legal document that passes ownership from one person to another.

Titles cannot be transferred if there are liens on the property. A lien is placed on your home when someone you owe money claims a legal right to your property as a form of collateral. Liens may be granted for unpaid contract work, back taxes, or overdue utility bills.

When a buyer purchases a home, they’ll want to protect themselves from liens that you or previous owners may have accrued on the property.

👉 MORE INFO: What is a Property Title Search?

Choose the right deed

Different deeds offer different levels of protection. If you’re using an agent, they’ll take care of this for you. If you’re selling FSBO, you’ll need to choose the type of deed yourself.

The most common type of deed is a general warranty deed because it’s the most secure. With a general warranty deed, the seller pledges that no one else has a stake in the property and it is free of any outstanding liens.

However, they are complicated to draft. If you don’t have an agent, you’ll likely need to hire an attorney.

Sellers can use a gift deed to transfer the title to a family member when no payment is exchanged for the property. The document must simply be signed and witnessed by two disinterested parties.

How to transfer a property title

Transferring a title involves a few simple steps. Keep in mind, that a title company will perform most of these steps if you choose to hire one.

Obtain the most recent deed from the county clerk’s office. You’ll need information, such as the legal description of the property, from that deed to create a new one.
Draft a new deed that transfers ownership to the buyer. You can write it yourself or hire an attorney to do it for you.
Sign the deed in the presence of a notary. You can find a notary at a local library, UPS Store, bank, college, or accountant’s office.
Mail or hand deliver the deed to the recipient. They may also need to sign the document.
File the deed with the county clerk’s office. This is usually the responsibility of the recipient, but you should obtain a copy of the newly recorded deed.

How much does transferring a title cost?

There are several transfer-related fees you’ll need to include in your budget. For example, you’ll likely have to pay for a copy of the old and new deeds, as well as a notary fee. Hiring a real estate attorney to prepare the deed will also cost you.

Creating your own deed through an online service like LegalZoom might only cost you a few hundred bucks. But if not done correctly, you could put yourself at risk of legal and financial problems in the future.

State and local governments also charge transfer taxes based on the value of your home. Each state has different rates that may cost the seller anywhere from hundreds to thousands of dollars.

Some states do not collect transfer taxes when the title is passed to a family member. Others don’t charge it at all.

💰States with no transfer taxes

Alaska
Idaho
Indiana
Louisiana
Kansas
Mississippi
Missouri
Montana
New Mexico
North Dakota
Oregon
Texas
Utah
Wyoming

Should you sell your house to a family member?

Selling your home to a family member can be beneficial for both parties. But the right decision will depend on many factors, such as your financial situation, giving history, and family dynamic.

Having tough conversations about money with family can be awkward, and selling to a family member may not be right for everyone. Weigh the pros and cons before you agree to sell to a relative.

Pros	Cons
✅ You may sell faster because you won't need to find a buyer.	❌ You could permanently damage the relationship with your relative if disagreements arise during the sale.
✅ You won't have to spend money on making your home "show ready." You'll pocket the cash you would have spent on photography, staging, and creating curb appeal.	❌ You (probably) won't make as much money as you would on the open market. This could leave you strapped for cash in the future.
✅ You get to keep something sentimental in the family. You may even get to visit your old house on occasion.	❌ You could run into trouble with the IRS if it suspects you of avoiding taxes associated with the sale.
✅ You can feel good knowing you helped a family member financially.	❌ You may approach the sale too casually. Don't assume you can rely on verbal agreements or skip steps of the process.

Take steps to prevent family drama by consulting a professional agent. Our friends at Clever can connect you with a local, full-service realtor who can keep the peace and help you save thousands. Clever pre-negotiates discount commission fees, so you pay a flat rate of 1.5% on homes over $350,000.

How to sell your house to a family member: FAQs

Can I sell my house to a family member for $1?

You can sell your home for $1, but you may be required to pay gift taxes. In 2022 you can give up to $16,000 per person during the year without paying the gift tax.

Can I give my house to my children?

Yes. If you own your home free and clear, you can give your house to anyone you want. No money needs to change hands. However, if you make a gift over the annual limit of $16,000, the IRS will levy a gift tax on the donor.

How can I avoid trouble with the IRS when selling my home to a family member?

The easiest way to bypass problems with the IRS is to agree on a price that is close to fair market value. A real estate agent can help you determine your home's fair market value by performing a CMA, which examines comparable properties that have sold recently in the same neighborhood. Learn how to find a realtor to get a CMA report on your home.

Will I pay taxes if I sell my house to a family member at fair market value?

When you sell an asset like your house, you may need to pay capital gains taxes on your profit. Most home sellers don't need to pay capital gains taxes because the first $250,000 of profit for individuals is tax free if you've lived in your home for more than two years ($500,000 for married couples).

Will my children pay capital gains tax if I give them my house?

It's possible. When you gift your home, your tax basis — the initial cost of the property — becomes the recipient's tax basis. If you bought your home for cheap, gave it to a family member, and the value of the home increased by more than $250,000, they'd have to pay taxes based on the initial purchase price.

How to Sell a House to a Family Member (Without Drama)