The IRS considers selling your home for a buck as a gift—and there are other issues to consider too.

Some homeowners wonder if they can sell their home to a child for a dollar in order to avoid taxes. While you can sell your home to an heir for a buck, it doesn’t mean you’ll avoid taxes. There are no simple answers when it comes to the best way to transfer property to an heir and minimize taxes. Each family’s situation will be different. Below, we share the basics of when federal gift taxes apply and how they relate to transferring home ownership to your heirs. Use the information here as a starting point, then consult with a tax advisor or real estate attorney who can guide you based on your circumstances and applicable state law.

Gift or estate taxes may apply

Whether you pay gift taxes or your heirs pay estate taxes depends on the value of your assets and how much you give away during your lifetime.

IRS rules allow anyone to make gifts while alive or when they pass away up to certain limits without incurring the gift tax. You can give one or multiple individuals each $16,000 in gifts each year if you file as a single taxpayer, or $32,000 if you file as a married couple. If you go over the exemption, you (the giver) would owe taxes on the value of the gift(s) over $16,000 or $32,000.

However, there is a lifetime exemption for gift and estate taxes on assets valued up to $12.06 million for single filers and $24.12 million for married filers. This means you can give away cash and assets up to these limits without incurring gift or estate taxes.

When it comes to selling your home for a dollar, the IRS considers the difference between a home’s fair market value and the price paid in a bargain sale as a gift. For example, if your home is worth $350,000 and you sell it to your daughter for $1, you made a gift of $349,999.

One of two things would happen next. You could pay the gift tax, ranging from 18% to 40%, on the non-exempt gift value in that tax year. With our example of a home valued at $350,000, the taxable amount is $333,999 if you’re single, $317,999 if you’re married. Or, you could apply the non-exempt gift amount to your lifetime gift limit. Either way, the giver reports the gift to the IRS.

To further complicate things, if you continue living in the home after your child buys the house for a dollar, the IRS may disregard the gift and consider the house part of your estate and tax it when you die. And, as the legal owner of the house, your child can do whatever they please with the property.

If the recipient of a gift home sells the property for more than what you paid for the home, they would owe capital gains taxes.

As you can see, technically, you can sell your house for a dollar but there are complex tax rules that must be considered. Get expert advice from a professional who can help you decide what’s best for your situation.

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