How To Sell A House To A Family Member | Smart change: personal finance
Bob Musinski – Councilor Forbes
Selling a house to a family member can be trickier than you think. Even if you try to do this without any professional help to save money, you might face issues, such as potential tax implications or family hardship, which you would otherwise avoid by buying a home with a professional.
Here are a few things to keep in mind when selling your home to a family member.
Why is a family home sale different?
When you sell a house to someone you don’t know, it is an arm’s length transaction, which means that both parties have entered into the purchase contract free and independent from each other. ‘other. Each party is expected to negotiate the best price and in most cases an appraiser working on behalf of the lender will confirm this.
However, when you are related to the person involved in the transaction, the IRS does not consider that transaction to be an arm’s length transaction and instead calls it a controlled transaction. The IRS will look at the sale price to see if it reflects fair market value or if the seller is offering the buyer a much lower sale price.
How is the price of a gift determined?
The fair market value of a home, as defined by the IRS, is “the price at which the property would change hands between a willing buyer and a willing seller, neither being obligated to buy or sell and both having reasonable knowledge of relevant facts. “