Yes, you can technically sell a house to a family member for $1, but the IRS treats this transaction as a "gift of equity" for the difference between the sale price and the fair market value. This triggers gift tax rules, requiring you to file a gift tax return (Form 709) if the equity gifted exceeds the annual exclusion ($18,000-$19,000 per recipient).
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 — but the IRS will likely treat the difference between the home's fair market value and the actual sale price as a gift. For example, if your home is worth $300,000 and you sell it to your son for $200,000, that $100,000 “discount” is 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.
Steps to selling your home to a family member
If you deed your property to your child, you give them your basis along with it. So when they later sell that property, they have to pay capital gains income tax on the difference between the basis and the sales price, that capital gain.
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.
Gift the House
When you give anyone other than your spouse property valued at more than $19,000 ($38,000 per couple) in any one year, you have to file a gift tax form. But as an individual, you can gift a total of $15 million (in 2026) over your lifetime without incurring a gift tax.
The "2-year, 5-year rule" primarily refers to the IRS rule allowing homeowners to exclude up to $250,000 (or $500,000 married) of capital gains from the sale of their primary residence if they owned and lived in it as their main home for at least 2 years out of the 5 years before the sale, meeting both ownership and use tests within that 5-year window. There's also a "5-year rule" for Roth IRAs, requiring separate 5-year periods for contributions and conversions to avoid taxes.
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, reduce capital gains, and reduce estate tax exposure.
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.
If you wish to sell your property you can find a buyer yourself or use an estate agent. Before making a decision you should consider how much each method would cost and how much time you have available.
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.
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.
Selling a home you've inherited can result in significantly less capital gains taxes than selling a gifted home. That's because the adjusted cost basis used to calculate your capital gains is not the price at which the decedent acquired it.
The "6-year rule" for Capital Gains Tax (CGT) in Australia allows you to treat a former main residence as tax-exempt for up to six years after you move out, even if you rent it out, enabling you to avoid CGT on any growth during that period. You qualify by moving out, choosing to treat it as your main home for tax, and can reset the rule by moving back in. If you rent it out for longer than six years, only the portion of the gain after the six-year mark becomes taxable.
Giving the house as a complete gift: This involves transferring the title of your property to the recipient without receiving any payment in return. This method is straightforward but requires understanding the tax implications, such as the potential for gift taxes if the value exceeds the annual exclusion amount.