Can I sell my home at less than market value?

Price discounts are fair gifts that can be subtracted from your lifetime gift waiver limit

It is helpful to have a benchmark understanding of how IRS tax gifts before we jump into whether to pay the gift tax on the home for sale to family members.

How gift tax works

When you give someone money or valuable items without paying in full in return, you may give gifts in the eyes of the IRS. However, this does not mean that you have to pay gift tax automatically whenever you send your grandchildren.

Unless you give millions of dollars in your lifetime, you may not pay gift taxes under current tax rules. Also, gifts to your spouse are usually not taxable.

Annual exclusion for the 2025 tax year $19,000

Typically, you can donate up to $19,000 in a given year, and if you get married and submit it together, you can give away $38,000 without reporting these gifts to the IRS.

example:

Suppose the fictional Diane gives her son Tyler and daughter Maryanne $19,000 in 2025 to help them pay for their new baby. She could have done this without having to participate in the IRS.

Usually, you will only need to report on your tax return if you provide a gift value of more than $19,000. Suppose Diane decides to give Taylor $20,000 instead of $19,000; an over-the-top gift for a person usually means Diane has to report the gift.

Lifetime gift waiver limit

$1,000 must be reported so that the IRS can track the total value you give in your life. Still, that $1,000 excess gain is not necessarily taxable.

In the 2025 tax year, a person’s lifetime exemption is $13.99 million. “This means you can give that money in your lifetime without having to pay a gift tax,” explains Xintian Wang of the CPA, an expert in the San Francisco-based tax preparation service, explains.

The restrictions apply to gifts given by the person who is still alive and after death, so the taxpayer must consider his or her inheritance plan in the gift tax liability. Gift amounts exceeding the $13.99 million exclusion threshold are taxed at a rate of 18% to 40%.

Gift tax when selling below market value

The same gift tax rules may apply when you sell a home that is below market value. The “gift” you provide does not give someone money directly, but a discount on the value of the home.

“If you sell your home at a market value that is less than its fair market value, it is a ‘fair gift’,” Wang explained. “As a seller, you must report the gift to the IRS if the gift is worth more than $1 (9), 000. The value of the gift is the difference between your selling price and the fair market value of the home. The seller is responsible for paying the gift tax, if applicable.”

example:

Diane sold her home to Tyler and Maryanne for $250,000, although the fair market value was about $400,000. For sale, including an equity gift of $150,000 (minus any amount of Diane can be subtracted as part of the annual exclusion), must be reported and subtracted from Diane’s lifetime exemption limit.

Remember, these examples are purely for educational purposes. When it comes to gift taxes, it is always wise to have a tax advisor about your situation.

If the house is fully talented, “strengthening” the tax base will not be transferred

If the seller chooses to give the full value of the home to the family members, they should be aware of the potential capital gains tax impact.