Selling Your House to a Family Member for Less: Taxes and Traps
Many parents want to sell the house to a son, daughter or other relative for a family price. That can be a kind thing to do. But a sale for less than the house is worth is, in the eyes of federal tax law, partly a gift. Knowing the rules first keeps a generous plan from creating surprises later.
A warm older kitchen with two coffee mugs and a set of house keys on a wooden table, afternoon sun through lace curtains and herbs on the windowsill
If you sell your house to a family member for less than it is worth, the difference is a gift under federal tax law. If that gift is more than the annual exclusion ($19,000 per person for 2026, per the IRS), you generally file a gift tax return. Your gain and your relative's tax basis follow special part-sale, part-gift rules. And if long-term care may be needed within five years, Medicaid's look-back can come into play.
Part sale, part gift
Federal tax law, at 26 U.S.C. 2512(b), says that when property is transferred for less than full value, the amount by which the value is more than the price is a gift. The IRS puts it simply: a gift is any transfer where full value is not received in return.
So a below-market family sale is two things at once. Up to the price your relative pays, it is a sale. Above that, up to the house's market value, it is a gift. Each part has its own rules.
| Item | The IRS regulation's own example |
|---|---|
| Market value of the property | $90,000 |
| Price the child pays | $60,000 |
| Parent's adjusted basis | $30,000 |
| Parent's gain | $30,000 (price minus basis) |
| Gift | $30,000 (value minus price) |
| Child's basis | $60,000 (the larger of price paid or parent's basis) |
Numbers come from the examples in 26 CFR 1.1001-1(e) and 1.1015-4. They are not a typical house value. Your figures will differ.
Want to know what full price looks like?
Ask us for a written cash offer. Even if you plan to sell to family, a real market number helps you and your tax professional size the gift.
When a gift tax return comes in
Under 26 U.S.C. 6019, a person who makes a gift generally must file a gift tax return, except for gifts covered by the annual exclusion and a few others. The IRS lists the annual exclusion as $19,000 per person you give to in both 2025 and 2026. A married couple who own the house together each get the exclusion, so the IRS shows $38,000 from two spouses in 2026.
In the example above, the gift is $30,000. One parent giving that much to one child is above the single-person exclusion. Two spouses giving it together may be within their combined amount. The IRS says the giver generally pays any gift tax. Whether tax is actually due depends on rules we do not cover here, so talk to a tax professional before you set the price.
Your gain, and your relative's basis
The regulations say the seller has a gain only to the extent the price received is more than the seller's adjusted basis. If the price is less than your basis, you do not get to claim a loss. If the house was your main home, the home sale exclusion may cover your gain. Our post on capital gains when selling a house explains that exclusion.
Your relative's basis matters when they sell later. It is generally the larger of what they paid or your adjusted basis, plus any increase for gift tax paid. For figuring a loss, it cannot be more than the market value when they got it. A low basis can mean more taxable gain for them down the road.
The Medicaid look-back
Federal Medicaid law, at 42 U.S.C. 1396p(c), says that if a person in long-term care, or their spouse, disposes of assets for less than fair market value on or after a look-back date, they can be ineligible for certain care for a period of time. For transfers made on or after February 8, 2006, the look-back is generally 60 months.
If you or your spouse may need nursing home care in the next five years, a below-market sale to family can cause problems with Medicaid. Our post on selling a house before a nursing home move covers Ohio's estate recovery rules too.
Family situations that come up
Every family is different, but a few questions come up again and again. Here is how the rules above apply to them.
Selling to your spouse
The IRS lists gifts to your spouse among the gifts that are generally not taxable gifts. A transfer between spouses can still raise other questions, such as title and any mortgage, so check with an attorney.
Selling at full price, then giving money back
The IRS calls any transfer where full value is not received a gift. Handing back part of the price later is still a gift. It just happens in a different order.
One child buys, the others do not
The tax rules only see the gift to the child who buys. Other children may still feel it is unfair. Some families talk it through openly, or adjust in a will, so the gift does not become a family dispute later.
Your relative already lives in the house
The rules are the same. What matters is the market value, the price paid and your basis. A relative who already lives there may still need a lender, an appraisal and a title company to close properly.
One more point is easy to miss. A gift is measured against market value at the time of the sale, not what you paid years ago or what you think it is worth. That is why the first step below is getting a solid value. If the value is unclear, the gift amount is unclear too, and so is whether you need to file a return.
It also helps to put the deal in writing, even inside a family. A signed purchase agreement that states the price, who pays which costs and when the sale closes protects both sides. It also gives your tax professional a clear record to work from.
Steps for a family sale
Know the market value
Talk to a tax professional
Check long-term care plans
Ask the buyer's lender
Close through a title company
Your six options
| Option | How it plays out | What to weigh |
|---|---|---|
| Keep it | You keep the house | Your relative may inherit later instead. Rules differ from a sale |
| Repair it | You fix it up first | Spend only where it raises your net |
| Rent it out | Rent to family or others | Below-market rent and landlord duties both need thought |
| List with an agent | Sell at market value to anyone | Commissions often run 5.5% to 6% |
| Sell it yourself (FSBO), to family | Part sale, part gift if below market | Gift tax return, basis and Medicaid look-back |
| Sell direct for cash | Sell at a set price to us | We can close as fast as 7 days, typically around 21. No gift involved |
Selling to family at full market value avoids the gift part. Helping a relative in other ways has its own tax rules.
Whatever you choose, look at your net proceeds: the price minus your mortgage payoff, closing costs and any commission. In a family sale, also count what you are giving away. In the example above, the parent kept $60,000 and gave $30,000.
Compare a family sale with a market sale
We buy houses across Cleveland and Northeast Ohio as-is. A written offer gives you a clear market-based number to put next to a family price.
This article summarizes 26 U.S.C. 2512(b) and 6019, 26 CFR 1.1001-1(e) and 1.1015-4, 42 U.S.C. 1396p(c) and the IRS gift tax FAQ as we read them in October 2026. It is general information, not tax or legal advice. We did not cover the lifetime gift and estate tax exemption, lender rules for family sales, or Ohio Medicaid rules in detail. Talk to a tax professional and an Ohio attorney before you set a family price.
Questions about a family sale?
Call or send us the address. We will talk through your options, including ones that do not involve us, and you decide what comes next.
Frequently asked questions
Partly, yes. Federal law says that when property is transferred for less than full value, the amount by which the value exceeds what was paid is a gift. The rest is a sale.
If the gift part is more than the annual exclusion for that person, you generally must file a gift tax return. The IRS lists the 2026 exclusion as $19,000 per person you give to. Filing a return and owing tax are different questions, so ask a tax professional.
The IRS says the person giving the gift is generally responsible for any gift tax. In special arrangements, the person receiving it may agree to pay instead.
You have a gain only to the extent the price you get is more than your adjusted basis. You cannot take a loss on a part-sale, part-gift. If it was your main home, the home sale exclusion may still cover the gain.
Generally the larger of what they paid or your adjusted basis, plus any increase for gift tax paid. For figuring a loss, it cannot be more than the fair market value at the time.
It can. Federal Medicaid law treats disposing of assets for less than fair market value during a look-back period, generally 60 months, as a reason for a period of ineligibility for certain care. Talk to an elder law attorney first.
That avoids the gift part. Some families sell at full market value and handle help in other ways. The right choice depends on your taxes, your health plans and your family, so get advice before you sign.
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