Is it illegal to sell your home for less than it's value?

[JakeB]

What is the name of your state (only U.S. law)? CA (but any state will do)

I was watching a financial program and the host took callers. One of the callers said that he planned on selling his home to a family member for $1. The host interrupted and said that it is illegal to sell real estate for less than it's worth.

That seems unlikely, but I don't know that for certain. Is the host correct? I can see that there could be other legal ramifications (such as gift tax issues), but is it truly illegal?

 

[CraigFL]

I don't think it would be illegal to sell your home for less than it's worth unless you were trying to defraud the government from getting their taxes. If it was a legal tax free transfer to a relative(if that's possible!), you could sell it for $1.

It's like the game some people play with a car sale to reduce sales tax-- put down less than you paid for it...

 

[FlyingRon]

The other issue is that the IRS would probably consider a sale so far below the FMV to be a gift. You'd be responsible for filing gift tax returns (and possibly paying the tax). Further, if the seller is going to be needing medicaid in the future, the transfer may screw up that eligibility.

The $1 transfer would reduce the buyers basis to $1 (making the tax issues for the buyer worse than if it was just given outright).

 

[Whadamess]

The reduced sales price would also affect comparable values around the area (i.e. appraisals on other homes, etc)

 

[anteater]

The other issue is that the IRS would probably consider a sale so far below the FMV to be a gift. You'd be responsible for filing gift tax returns (and possibly paying the tax). Further, if the seller is going to be needing medicaid in the future, the transfer may screw up that eligibility.

The $1 transfer would reduce the buyers basis to $1 (making the tax issues for the buyer worse than if it was just given outright).

You are correct in the first paragraph. But the basis would not be reduced to $1. The new owner (the recipient of the gift) would take on the giftor's cost basis.

 

[HomeGuru]

What is the name of your state (only U.S. law)? CA (but any state will do)

I was watching a financial program and the host took callers. One of the callers said that he planned on selling his home to a family member for $1. The host interrupted and said that it is illegal to sell real estate for less than it's worth.

That seems unlikely, but I don't know that for certain. Is the host correct? I can see that there could be other legal ramifications (such as gift tax issues), but is it truly illegal?

**A: it is not illegal to sell a home less than it's value but the scenario presented to you is illegal and a known scam.