Your family home is worth $250,000, but you want to essentially give it to one of your children. You have now moved out, and you live in a nursing home anyway, so it seems like a good idea to pass it on independent of your other estate planning. That is to say, you’re not going to wait for it to go to your heirs with the rest of the estate.
You’re also not going to charge your son or daughter $250,000. Maybe you want to give them a nice deal and sell them the home for $100,000, making it far more affordable for their family than any other house in the area. Maybe you want to give it to them as a gift, but you decide to make it official with a $1 sale. Can you do so?
You definitely can, but do not assume you’re getting around the IRS by doing it. If gift taxes apply, you could still owe the tax on the difference. That means tax on $150,000 in the first example and $249,999 in the second example.
Think of it this way: If you sold your home to a third party for the market value of $250,000 and then gave the money to your child as a gift, that federal tax may apply. If you sell the home for far less than it’s worth, you’re still gifting them something with the same value, even if you’re not handing them cash on the spot.
So, while you do have the right to do as you please with your property, it’s really important to consider your situation and what is best for your family.