Can My Parents Sell Me Their House For a Dollar? (2024)

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What if my parents gift me the house but continue to live there?

Giving someone a house as a gift — or selling it to them for $1 — is legally equivalent to selling it to them at fair market value. The home is now the property of the giftee and they may do with it as they wish.

Whether your parents continue to live in a house they gifted you has no effect on the validity of the transaction, Pecharich says.

Pecharich’s concern with this scenario, however, is that once parents give property to their children, they lose complete control over it and could be pushed out of the home if the children have a change of heart about letting them stay there.

If the parents want to immediately give the home to their children while securing their right to continue living there, then Pecharich suggests using what is called a life estate deed. The home technically would belong to the children, but the parents would continue to pay the taxes on it and be entitled to live there as long as they choose to.

What is the easiest way to transfer property to a family member?

Pecharich says the easiest way to confidently transfer property to a family member is to go to a title company and pay them to do a warranty deed from you to the family member.

This is a cost-effective and reliable method for completing the transaction, as a warranty deed ensures the seller is the legitimate owner and that the title is clear.

“When you’re transferring property from one person to another, you want to ensure it’s done right because it’s affecting the chain of title,” Pecharich says. “Sometimes you don’t know your own title. Maybe there’s a lien on that title that you didn’t even know about. If you transfer it to your son or daughter with a lien on it, then you’re creating a problem for them.”

If you’re absolutely sure the title is clean, then a quitclaim deed can be an even simpler transfer method.

A quitclaim deed is a method for property owners to relinquish their claims, offering no buyer protection. Named for its nature of the owner “quitting” their claim, it’s a fast way to transfer real estate titles without seller guarantees, simply transferring whatever ownership interest the seller has. Ruiz notes that requirements for quitclaim deeds vary by state, with some states having more specific standards than others.

What if I sell the property my parents gave me for $1?

One of the main concerns with gifting real estate is that the recipient inherits your tax basis, which includes the original cost of the property plus the value of any major improvements made to it.

For example, if your parents purchased their home for $100,000 many years ago, and they gift you the home this year when it’s valued at $500,000, your basis for determining any gain or loss from selling it is now $100,000 rather than the market value of $500,000. This means you will have a $400,000 gain if you sell the house for $500,000.

In this example, the only way you would get a break on that capital gains tax is if you owned the property for at least two years and lived in it as your primary residence for at least two of the past five years before selling it. If you meet these qualifications, then the IRS would allow you to exclude up to $250,000 worth of gain, or $500,000 if married and filing jointly.

If your final surviving parent instead leaves you the house as an inheritance, you will receive what’s known as a “step-up” in the tax basis of the home to the market value on the date of your parent’s death. So rather than the $100,000 amount they originally paid for their property, you can use that $500,000 value on the date your last parent dies as your tax basis. Now if you sell the property for $500,000, you may have no taxable gain. This “inheritance” classification can save you a lot of money if you are planning on selling the home.

What if the gifted house is now worth less than what my parents paid for it?

You would not be allowed to claim a loss when selling the property. In the eyes of the IRS, any gains or losses would be determined by what you paid for the home. If the home was a gift, you incurred no losses.

Can my parents sell their house and give me the money?

Yes. This is just another form of gifting that would need to be reported to the IRS using a gift tax return.

What happens if I rent out the property my parents gave me?

This is also perfectly acceptable.

“Whether the kids live in the house or they just take it and rent it out, the value of the house is still a gift; it’s still counted toward that lifetime gift tax exemption,” Pecharich says.

Can I buy my parent’s house to avoid inheritance tax?

You can, but whether you should depends on which state you live in and how much you expect to inherit.

Only six states have an inheritance tax: Iowa (which is phasing out its inheritance tax), Kentucky, Maryland, Nebraska, New Jersey, and Pennsylvania. There is no federal inheritance tax.

This is a tax on the money and property you receive from the estate of a deceased person. The tax percentage in each state varies depending on the recipient’s relationship to the deceased and the value of the assets received.

“Transferring to avoid inheritance tax is usually not necessary,” Pecharich says. “You have to talk to your accountant or attorney to figure it out, but usually that’s not a good reason to transfer title.”

Find the right advice

Purchasing a house from your parents for $1 is entirely valid. However, whether it is the best financial decision for you and your family is a different matter.

In addition to reading up on the process, you may wish to consult an accountant, attorney, real estate agent, or all of the above.

To find an experienced agent, consider using HomeLight’s Agent Match platform. Our free tool analyzes millions of transactions and thousands of reviews to determine which agent is best for you based on your needs.

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