Yes, you can legally sell your house to your son for $1, but the IRS treats this transaction as a gift, not a sale, for the difference between the sale price and the fair market value (FMV). You will likely need to file a gift tax return, and this transfer may impact your lifetime gift tax exemption, capital gains taxes, and property taxes.
Sell Your Home
You may consider the option of selling your house to your children. If you sell the house for less than fair market value, the difference in price between the full market value and the sale price will be considered a gift.
Inheriting a home provides a “step-up” in cost basis for capital gains tax purposes, meaning you're taxed only on appreciation after the date of inheritance. By contrast, buying a house for $1 means your cost basis is the original owner's purchase price — potentially leading to higher taxes if you sell in the future.
When selling property to family, the IRS treats sales below fair market value (FMV) as a partial gift, triggering gift tax reporting (Form 709) if over the annual exclusion ($19,000 per person in 2025). You cannot deduct losses on sales to related parties, but gains are taxed; proper documentation (like an appraisal) is crucial for any below-market sale to prove it's a bona fide transaction and avoid IRS scrutiny, especially concerning capital gains or gift tax rules.
To transfer property tax-free to family in the U.S., use methods like gifting within the annual exclusion ($19,000/person in 2025), leveraging the large lifetime exemption (around $13.99M in 2025), creating a Qualified Personal Residence Trust (QPRT), or using a life estate, but beware of capital gains for the recipient and potential Medicaid transfer penalties, with inheritance often offering a better step-up in basis to avoid future capital gains.
You can choose from two main methods to price a home sale to a family member: make a gift of equity or sell the home at fair market value. If both parties aren't careful, a gift of equity can result in significant gift tax implications.
There are several ways to pass on your home to your kids, including selling or gifting it to them while you're alive, bequeathing it when you pass away or signing a “Transfer-on-Death” deed in states where it's available.
The short answer: Yes, you can absolutely sell a home below market value—and legally gift the difference. It's a legitimate and frequently used estate planning strategy that can support younger generations, avoid probate, and reduce estate tax exposure.
Property Tax Reassessment: In states like California, transferring property, even for a nominal amount, can trigger a reassessment at the current market value. However, family transfers may be excluded from reassessment if proper documentation is filed.
Selling your house to your kids for far less than its market value, like $1, is essentially considered a gift by the IRS. The difference between the home's market value and the sale price counts as a gift, which means you could owe gift taxes.
The "3-3-3 rule" in real estate isn't a single guideline but refers to different strategies: for buyers, it's about financial readiness (3 months savings, 3 months reserves, 3 property comparisons) or a financial affordability check (30% income, 30% down, 3x income); for agents, it's a marketing habit (call 3, note 3, share 3) or prospecting (talking to everyone within 3 feet). There's also a developer rule (1/3 land, 1/3 build, 1/3 profit), though it's considered outdated by some.
This step-up makes inheritance a better way to transfer property to family than selling below market value in some situations. Your primary residence exclusion could offer much-needed relief if you bought your home for $1.
There are 2 primary methods of transferring wealth, either gifting during lifetime or leaving an inheritance at death. Individuals may transfer up to $15 million (as of 2026) during their lifetime or at death without incurring any federal gift or estate taxes. This is referred to as your lifetime exemption.
Yes, your parents can gift you a house, but it involves navigating tax implications (like filing gift tax forms and potential capital gains taxes for you) and legal steps, with potential downsides like higher property taxes or Medicaid transfer penalties for them, making it crucial to consult a lawyer or financial advisor to understand the specific federal and state rules, especially regarding the cost basis, gift tax exclusion, and lifetime exemption.
It allowed sellers to claim CGT exemption for the final 36 months of ownership, even if they had moved out. However, this was reduced to 18 months in 2014 and further to 9 months in 2020, which remains the rule today. This general law is in place as it prevents short-term transaction benefits concerning taxation.
The most tax-efficient way to leave a home to a child usually involves leaving it in your will for them to inherit, which qualifies for a stepped-up tax basis (reducing capital gains tax if sold) and avoids immediate gift taxes, though trusts (like Revocable Living Trusts for probate avoidance or QPRTs for advanced planning) or Transfer-on-Death (TOD) deeds (where available) offer control and probate avoidance, while outright gifting is generally less tax-efficient due to inherited basis issues. Consulting an estate planning attorney is crucial to choose the best method for your specific situation.
Option 5: Sell the house to your child at a discount
It was a bad sale, but the IRS doesn't care because it's an arm's-length deal. But if you try to sell your house to a relative for less than its fair market value, the IRS considers this a gift and won't let you take a loss on the sale.
Generally, from a tax perspective, it is more advantageous to inherit a home rather than receive it as a gift before the owner's death.
Many people who are worried about what will happen to their home when they die ask us whether it would be better to simply add their child's name to their deed. We caution against adding your child to your deed and, in almost all cases, recommend including them in your will instead.
You can sell a property for below market value to a family member, or anyone for that matter. However, you need to do so carefully. Under current tax law, the difference between the fair market value and the purchase price becomes part of your gift exclusion.
If your home has a fair market value of $200,000, and you sell it to your child for $1, the IRS will likely consider the difference between the two values as a gift. The 2023 annual exemption for gift tax is $17,000, the lifetime exclusion stands at $12.06 million, and the donor is responsible for paying gift taxes.
For the most part, the answer is yes. While there isn't an outright ban on entering into a short sale agreement with a member of your family, most banks require that you enter into an arm's length transaction.