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The Land Advisor
The Land Advisor, Experienced Land Investor
Category: Finance
Satisfied Customers: 1387
Experience:  Retired successful "land baron", financier and investor.
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home sale/transfer below market price to family member

Resolved Question:

What are the ramifications of selling a home to a family member significantly below market price in CA (eg $380 sale vs. $600k market value)? Will the tax rate be based on the sale price or what the gov't believes is the current market value of the home? Is it legal to sell a home materially below market price to a family member? The goal is to transfer the title of a home from myself to a sibling without having to deal with gift taxes, higher real estate taxes, etc.
Submitted: 10 years ago.
Category: Finance
Expert:  The Land Advisor replied 10 years ago.
It is legal to sell a home for whatever price you want...

BUT you are making a partial sale and partial gift of the home to your family member. There is a lifetime gift tax exemption that will cover your partial gift. You will not be able to comlpetely avoid dealing with gift taxes.

The house will be assessed at today's actual value unless you meet the requirements for an exemption of reassessment. Your county assessor can give you a copy of their Preliminary Change of Ownership Form where the exemptions are listed. Parents to children, or grandparents to children, "may", according to that form, qualify for exemption. You should get legal advice on this, because one you've done it, the transaction can't be undone for assessment purposes.

You CAN, with the help of an experienced real estate attorney, create a suitable trust, deed your house to the trust without reassessment, and then grant a beneficial interest in the trust to your family member, ALSO without reassessment. THAT would avoid higher real estate taxes.

Hope these thoughts help.
Customer: replied 10 years ago.
Reply to The Land Advisor's Post: Can you elaborate on the "lifetime gift tax exemption" that may cover a part of the discrepancy between the reduced sale price and the market value of the house?
Expert:  The Land Advisor replied 10 years ago.
The first $1 million of lifetime gifts is exempt from gift tax.

"...In addition, because of the 2001 reform act, the estate tax itself is being phased out over a 10-year period, but the gift tax will remain in place. The gift tax exemption is $1 million in 2004, consistent with the estate tax. In future years, the gift tax exemption will remain at $1 million, while the estate tax exemption rises until the estate tax is fully repealed in 2010. At that time, the top gift tax rate will equal the top income tax rate..."


The exemption has not changed since this article was written, it is still $1 million in a person's lifetime.

Although a gift tax return will probably be required (see your CPA or tax preparer) you will be more than covered by the $1 million lifetime exemption.
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