Yes, your mom can legally sell you her house for $1, people do it all the time to transfer property within a family. But “selling” it for a dollar does not make it a real one-dollar deal in the eyes of the tax authorities. The IRS treats the gap between the dollar and the home’s real value as a gift, transfer tax is still based on fair market value, and you inherit your mom’s low cost basis, which can mean a big capital-gains bill later. Here is what actually happens.
1 It is legal
Nothing stops a parent from transferring a home to a child for a nominal amount. The deed can recite $1, or the classic “$10 and other good and valuable consideration,” and the transfer is valid once signed, notarized, and recorded. The legality is not the issue. The tax treatment is.
2 The IRS sees a gift
When you buy a home worth, say, $500,000 for $1, the IRS treats the roughly $500,000 difference as a gift from your mom to you. That may require her to file a gift tax return. Most people will not owe gift tax immediately because of the large lifetime exemption, but the transfer still has to be reported, and it uses up part of that exemption.
3 The capital-gains trap
This is the big one people miss. When property is gifted, you generally take over the giver’s cost basis, what your mom originally paid, plus improvements. If she bought the home decades ago for $80,000 and it is worth $500,000, your basis is roughly $80,000. Sell it later for $500,000 and you could owe capital-gains tax on about $420,000. By contrast, if you inherit the home, the basis usually steps up to its value at the date of death, which can wipe out most of that gain. That is why a $1 sale can cost far more than it saves.
4 Transfer tax and Medicaid
Two more things people overlook. New York generally bases its transfer tax on the property’s fair market value for a non-arm’s-length transfer, so the $1 does not avoid it. And if your mom may need Medicaid for long-term care, giving away the house can trigger a look-back penalty that affects her eligibility. These are real consequences, not fine print.
5 Do it the smart way
If, after getting tax advice, a transfer is the right move, we prepare the deed, notarize it, handle the transfer-tax forms, and record it correctly. See our NYC deed and document recording service, or call 347-762-0262. Because the tax stakes here are high, talk to a tax or estate professional before you decide.
Transferring a home to family?
Once you’ve got tax advice, we prepare, notarize, and record the deed correctly across NYC.
Yes, it is legal, but it is treated as a gift for taxes. Transfer tax is based on fair market value, and you inherit her cost basis, which can mean big capital-gains tax later.
Is a $1 sale a way to avoid taxes?
No. It can actually increase taxes, because you lose the step-up in basis you would get by inheriting, and transfer tax is still based on real value.
Would inheriting the house be better?
Often, yes, because the basis usually steps up to date-of-death value, reducing capital-gains tax. It depends on your situation, so get tax advice.
Related: the best way to leave your house to your heirs and why people put $10 on a deed.
This article is general information, not legal or tax advice. Gift, capital-gains, transfer-tax, and Medicaid rules are complex and change. Consult a tax or estate professional before transferring a home.