How To Sell A House To A Family Member

How To Sell A House To A Family Member

March 1, 2021

Produced by:
Elizabeth Welgemoed

Elizabeth is a Senior Content Marketing Manager with over 10 years of experience in the field. Having authored or edited 1,000+ online articles, she is a prolific content producer with a focus on the real estate vertical.

Selling a house to a family member creates a sticky situation. When you sell to a stranger, there’s an arm’s length transaction which usually means both parties’ interests are protected and the IRS doesn’t eyeball the situation too much. 

If you sell to a family member, it’s a whole new ballgame. You may not sell the home for its value or even try gifting the home. It’s not as easy as it sounds.

Is it possible to sell to a family member?


Are there different rules or laws?


Before you sell a home to a family member, know what to watch out for and understand before making the transaction or you could find yourself in hot water with the IRS or owing more than you anticipated at tax time.

What’s The Difference?

Here’s the difference. When you sell to a stranger, you probably try to get at least as much as the home is worth, right? You pay capital gains taxes on any profits that fall outside of the IRS exclusions and everyone is happy.

When you sell to a family member, you might sell the home for its worth, or you might not. Why would you when it’s family, right? The IRS thinks otherwise because they’re missing out on the tax income they would earn if you sold to a stranger.

It’s a fine legal line you walk and if you don’t do it right, could wind up in legal trouble. But, with the right help, it’s possible.

Hire A Real Estate Agent

It seems crazy to pay a real estate agent to sell your house to your sister or cousin, right? 

It’s not.

A real estate agent is a professional and neutral third-party and is just what you need. A real estate agent does more than market your home. When you’re selling to a family member, the agent will:

  • Handle negotiations professionally (without emotion)
  • Price the house properly
  • Help with the inspection, appraisal, and closing process

A real estate agent is a vital piece of the puzzle. Even though you may not want to pay the commission, it’s worth it to know you’re doing everything to the letter of the law and that you and your family member have a neutral third-party helping you solve any issues otherwise you risk your close relationship. 

Hire An Attorney

All (or most) real estate transactions require a real estate attorney. You’re signing and sharing legal documents. You want to make sure everyone is protected. Even though you’re dealing with family, it’s best if you have your own attorneys. This isn’t to pit you against one another but to make sure there aren’t any conflicts of interest or issues later.

Get The Home Professionally Appraised

A real estate agent is a great source for the home’s value, but there’s no replacement for a professional appraiser. Knowing the home’s fair market value is crucial.

You’ll know your baseline and at what point the sales price would throw the IRS a red flag. If it’s too low OR the sales price conveniently knocks you into the capital gains exclusion when you otherwise wouldn’t have been, the IRS may investigate.

Use the appraised value to determine how to go about the sale so you trigger no tax liabilities.

Stick To The Appraised Value (Or Close To It)

It’s easy to want to ‘gift’ the house to your family member, but the IRS won’t like that. Even giving a large discount is frowned upon. 

Ideally, stay within 75% or higher of the appraised value and you’ll be okay. If you give more than a 25% discount on the fair market value, you’re looking at hefty gift taxes. 

If you can’t (or don’t want to) sell at least 75% of the appraised value, here’s how to get around it:

  • Offer seller financing – You become the ‘lender’ and the buyer pays you each month instead of a bank. You control the terms for the buyer, which may even mean no interest to make up the difference in what you’d gift
  • Gift the maximum amount each year – You can sell the property at the fair market value or within 75% of it, and as the seller, give the seller a cash gift up to the maximum amount (\$15,000 in 2021) each year until you ‘pay them back’ the amount you wanted to gift. 
  • Use a quitclaim deed – If you’re giving and not selling the property, file a quitclaim deed, pay the filing fees and let your family member take over the home. This only works if NO money exchanges hands.

Talk To Your Tax Advisor

When selling a home to a family member, it’s a good idea to talk to your tax advisor too. Normally you don’t need to involve him/her in your real estate transactions until tax time, but this time around things are different.

Be 100% sure you are following all IRS rules and won’t land yourself in hot water or owe astronomical amounts at tax time. Give your tax advisor the low down on the transaction including that you’re selling to a family member to make sure you’re following all rules and regulations.

Bottom Line

Can you sell your home to a family member?

Absolutely, but you must follow all rules and regulations. It’s a finer line you walk and shouldn’t be done without the help of many professionals including a real estate agent, appraiser, attorney, and even your tax advisor.

There are plenty of ways to help your family member afford the home without flat out gifting it and facing serious tax issues. Before you do anything, get a professional appraisal and figure out how you want to proceed from there.

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