There are many reasons why someone will consider selling house below market value – but this kind of act can cost you a hefty tax bill if you don’t take the appropriate steps.
This blog post will discuss the pros and cons of selling your house to a family member below the market price.
Selling A House Below Market Value
Selling house below market value means pricing your property below its perceived cost. The market value of your home is estimated by conducting a comparative market analysis of comparable homes.
Moreover, the home’s fair market value is often identified when buyers put in their offers. Note that when you selling under market value, you still have to pay for closing costs, including title charges, property transfer taxes charged by local governments, escrow, attorney fees, capital gains taxes, etc. This is why selling low on the traditional market is only sometimes suggested.
Meanwhile, when a cash buyer gives you an offer below fair market value, you won’t have to pay closing costs, repairs, agent fees, or soft costs like handling open houses and lender delays.
Is Selling A House To A Family Member Legal?
Legally, you can sell your property to anyone – including your children. But you’ll need to consider some significant tax and lending implications if you sell your home to your children for less than its market value.
The Tax Implications Of Selling A House Below Market Value
Selling a property for less than the market value can have tax implications for you as the seller and the buyer. If you are planning to sell house to family member at below-market value, you should be aware that the following taxes might be due:
Gift Tax
In the US, selling a house to a family member for less than it’s worth is treated as a gift of the difference. If a $300,000 house sells to your son for $200,000, the $100,000 gap counts as a gift. In 2026 you can give up to $19,000 per person per year without filing a gift tax return. Above that you file IRS Form 709, but tax is usually only owed once your lifetime gifts pass the federal exemption, $15 million per person in 2026. See the IRS gift tax FAQ.
Virginia has no state gift, estate or inheritance tax, so the federal rules are the ones that matter.
Capital Gains Tax
If the house isn’t your primary residence, or your gain is larger than the home-sale exclusion ($250,000 single, $500,000 married filing jointly), you may owe federal capital gains tax on the difference between what you paid for the house (plus improvements) and the sale price. A below-market sale to family can’t create a deductible loss, and the buyer usually takes over part of your original cost basis, which affects their taxes when they sell later.
Legal implications when selling a property below market value
A below-market sale to family is legal in Virginia, but the deed, the price and the gift portion should all be documented properly.
If you’re selling below market to qualify for Medicaid long-term care, Medicaid looks back five years at asset transfers, and a below-market sale can delay eligibility.
Talk to a Virginia real estate attorney and a CPA before you sign anything.
Not selling to family? Compare a cash offer
If a family sale doesn’t work out, or you’d rather not mix family and money, HR Property Doctor buys houses as-is across Hampton Roads. You get a written cash offer within 24 hours, with no repairs, no agent commission and a closing date you choose. As licensed Virginia agents, we can also tell you what listing would likely net you. Call 757-610-9400 or request your offer.
Selling a property at a discount to your children or other family members
By selling your home to a family member or friend, you’ll be helping them establish wealth and equity for the future, but make sure to do it strategically and legally. Consider the tax implications of a lower sales price. Real estate agent selling to family members are considered controlled transactions.
This means lenders and the IRS treat these deals differently than an arm’s length transaction between two parties acting in their interests. If you’re selling the home beneath market value, the IRS may consider the property transfer a gift, in which case a gift tax may apply. Discuss with an accountant or financial planner how a gift tax affects your estate planning and tax liability.
To ensure a seamless process, especially when dealing with a land contract between family members, it’s crucial to document all agreements in writing.
Tips for selling to a family member
Whether selling to a family member or a stranger, you should ensure your home sale is well-organized. Here are some tips for selling a house to a family member
Hire professionals
Hire at least one real estate agent and one real estate attorney to help make sure documentation is filed correctly on closing day. It takes a lot of paperwork to sell a house, especially when selling below market price. Ensure all state-required property disclosures and tax documents are professionally handled and filed.
Determine a fair price for the house
You and your family member may already have a ballpark figure in mind for what the home should sell for. But if for nothing other than tax purposes, it’s still essential to have an accurate gauge of the home’s fair market value at the time of sale. You can identify the market value of your home in a few different ways.
Put everything in writing
Document all terms and agreements of the home sale. Everyone does business differently, even if you have an excellent relationship with the person you’re selling to. Make sure to keep copies of verified documents throughout the transaction and after the transaction has been completed.
Double check with tax laws
The IRS may think you’re trying to avoid paying capital gains or income tax if you don’t adequately disclose that you’re selling below market value. Your tax attorney will be able to guide you through this process, so make sure to consult with them before closing.
Final Thoughts
By selling your home to a family member, you’ll be helping them establish wealth and equity for the future, but make sure to do it strategically and legally. Consider the tax implications of a lower sales price. Real estate deals between family members are considered controlled transactions. Complete key steps like the inspection and engage the assistance of a real estate expert and tax advisor.
With these guardrails, you can usually sell your house to a family member without trouble. It is vital to consult a Virginia real estate attorney if you are planning on selling a property to a family member at below market value before you do anything else. A legal advisor can explain all the pitfalls and implications and help you find the best solution for you and your family members.