Can My Parents Sell Me Their House for $1? A Quick Guide to Family Real Estate Transfers

If you’ve ever joked with your parents about selling you their house for $1, you’re not alone. Many millennials are exploring creative ways to take on homeownership, especially with rising property prices and a competitive real estate market. But is it really possible—or even legal—for your parents to sell you their home for just a buck? Let’s break it down.

Yes, They Can—But It’s Not That Simple

Legally, your parents can sell their house to you for $1. However, this approach can trigger significant tax and financial implications that you’ll want to understand before making any decisions.

Here’s what you need to know:

1. The IRS May Treat It as a Gift

When a house is sold for significantly less than its fair market value, the IRS views the transaction as a gift. That means your parents would need to file a gift tax return if the home’s value exceeds the annual gift tax exclusion limit, which is $17,000 per person in 2023.

The excess value of the house over this limit will count against your parents’ lifetime gift and estate tax exemption, which is currently $12.92 million per individual. While this might not affect everyone, it’s something to keep in mind if your parents plan to pass down other assets.

2. Property Tax Reassessments

Selling a home for $1 might trigger a property tax reassessment, depending on your state. Some states have provisions that keep property taxes low for intra-family transfers, but not all do. If your parents’ home has been in the family for decades and assessed at a lower value, you could end up paying significantly higher property taxes after the transfer.

3. Capital Gains Tax on Future Sales

When you eventually sell the home, the IRS will use the home’s original purchase price (the “cost basis”) to calculate your capital gains tax. For example, if your parents bought the house for $100,000 and you sell it for $500,000 in the future, you’ll owe capital gains tax on $400,000, minus allowable deductions.

If your parents gift you the home instead of selling it for $1, the same tax implications apply because the cost basis transfers with the property.

4. Alternatives to a $1 Sale

Rather than a symbolic $1 sale, there are other ways to transfer a home to a family member with fewer tax consequences:

  • Sell the House at Fair Market Value: Your parents can sell you the house at its current market value, and you could use a traditional mortgage or family financing arrangement to make the purchase.

  • Add You to the Deed: Your parents could add your name to the deed and gradually gift ownership over time.

  • Life Estate Deed: This allows your parents to retain the right to live in the home while legally transferring ownership to you.

  • Inheritance Planning: If your parents intend for you to have the home after they pass, it might make more sense to inherit it. The step-up in cost basis upon their death could reduce your capital gains tax liability.

5. Consult Professionals Before Making a Decision

While the idea of buying a home for $1 sounds appealing, it’s crucial to work with professionals, including:

  • A real estate attorney to draft the transfer documents.

  • A tax advisor to understand potential tax liabilities.

  • A financial planner to ensure the transfer aligns with your long-term financial goals.

Your parents can technically sell you their house for $1, but the financial and tax implications might outweigh the benefits. Exploring alternative options, like selling at fair market value or gifting the property strategically, can help you avoid unintended consequences.

Before proceeding, make sure you consult the right experts to ensure the transaction is legal, financially sound, and in everyone’s best interest.

Kevin Woo