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According to a 2021 study by NAR, about 8% of people sell their home to someone they already know. The study also found that 28% of first-time buyers used a gift or loan from friends or family for the down payment. 

So it may not be surprising to hear that sometimes families try to evade estate taxes and help family members buy a home — by gifting a home to a family member while they are still alive for a ridiculously low price. 

This begs the question, can you sell a house for $1? In short, yes, but keep reading for more insight into the process and why it may cost the seller a lot more than $1 to arrange this type of deal. 

Can you sell your home for a dollar?

Every so often, someone thinks they’ve found a loophole and that they can sell and buy a home from a friend or family for a dollar, or some other low price. But is it legal to sell a house below market value when that amount is as small as a dollar? 

Technically yes, you can sell a house for a dollar. The more important question is, is it a good move to sell or buy a house for that small of an amount of money?

While the seller can enjoy the ease of an all-cash offer with a sales price of $1, they may end up dealing with a lot of hassle come tax season.

Some parents may try to sell their home to a child for just one dollar in order to help their child avoid estate taxes down the line. Unfortunately, they will just swap potentially having to pay an estate tax for a gift tax in this situation. 

The tax implications of selling a home for a dollar

Let’s say a home’s fair market value is $300,000. If someone sells a home of that value for $1, the Internal Revenue Service (IRS) will look at that sale as making a $299,999 gift even if the sale occurs between a parent and a child. The gift tax rate is between 18% to 40%, which can really add up when a gift is as large as a home. 

When it comes to large gifts that are taxable, there is a $16,000 gift tax annual exclusion (for 2022) per person per year. That means the taxable amount drops from $299,999 to $283,999. While you won't need to pay the tax on the first $16,000, you will need to pay it on the remaining amount. 

You can then choose to pay that gift tax in the year you make the gift or can apply it to your lifetime exemption which is $12.06 million (as of 2022). This means that you can give away $12.06 million when you are alive or from your estate after you pass without incurring gift or estate taxes. 

The point being: whether or not you will have to pay a gift tax if you sell the home for $1 depends on how much you have already given in gifts and plan to give in your lifetime. It’s worth noting that 12 states and the District of Columbia have much smaller limits for gift and estate tax, so it’s worth looking into how you will be affected on a state level as well as a federal level. Some states, like California, don’t have a gift tax. If your state charges a gift tax you may have to pay on both a state and federal level. 

Consulting with a tax attorney before you finalize the sale will help you determine if you will need to pay a gift tax after you sell a house for $1 and how much that tax will be. You may find that the bill is too high to pay without earning any proceeds from the sale of the home. 

Selling a house for under market value

Selling a home for just $1 is a rare circumstance that you typically see between family members when they want to keep a property in the family. What you’re more likely to see happen is family members selling their homes for highly discounted amounts that are under market value, but aren’t so obviously a gift. 

Be careful here — if you sell a home below market value the same gift tax rules still apply. The government sees a sale for under market value as a “gift of equity.” The seller is responsible for reporting this gift to the IRS if the value surpasses $15,000. In this case the value of the gift will be the difference between the fair market value of the home and the selling price. 

How do people buy homes for a dollar?

If buying a home for a dollar isn’t all it’s cracked up to be, then what’s with all of those new stories and social media posts about homes being sold for a dollar in places like Detroit and small Italian villages

Sometimes cities or municipalities that need to revitalize the area will offer homes for ridiculously low prices like $1 in order to incentivize people to move to the area, fix up homes, and repopulate the community. Because it’s hard to know when and where those opportunities may arise, if you have your heart set on buying a home for $1, you would be better off looking into HUD's Dollar Homes initiative.

This initiative helps local governments create housing opportunities to low and moderate income families. By offering them HUD-owned homes for $1 (these are vacant homes with a current market value of $25,000 or less that have been on the market for six months), consumers can buy a home, move in, fix it up, and contribute to the growth and improvement of the community and the local economy. 

Personally we wouldn’t blame you if you say arrivederci to your high rent and move to one of those $1 Italian homes, but you may find the HUD Dollar Homes initiative easier to navigate than a foreign one. 

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