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.
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Why the price on the deed does not decide the tax
The one dollar figure is a drafting convention, not a valuation. New York calculates transfer tax on the consideration, and where a transfer is for less than fair market value the taxing authorities look at what actually changed hands, including any mortgage being assumed.
If your mother transfers a house carrying a $200,000 mortgage and you take on that debt, the assumption of the mortgage is itself consideration. A deed reciting one dollar does not make that disappear.
The forms travel with the deed regardless. The state transfer tax return TP-584, the real property transfer report RP-5217, and the applicable city return, even when the consideration really is nothing. Exemptions for certain family transfers exist and must be claimed correctly rather than assumed.
The bigger number is capital gains
This is where families lose money without noticing.
Buy the house from your mother during her lifetime, for a dollar or otherwise, and you generally take her original basis. When you eventually sell, the gain is measured from what she paid, which on a house bought decades ago in New York City can be an enormous figure.
Inherit the same house and you generally receive a stepped up basis at the date of death value. Sell soon after and there may be little or no gain at all.
The probate people are trying to avoid is usually far cheaper than the tax they are creating.
What else follows a lifetime transfer
A transfer for less than value is a gift, with federal reporting obligations above the annual exclusion. It can trigger a Medicaid look back affecting long term care eligibility. It exposes the property to the recipient’s creditors, spouse and judgment holders. It can end STAR, senior and veteran exemptions attached to the current owner. And it does not move the mortgage, so a parent who transfers can remain liable on a loan for a house they no longer own.
Better questions to ask first
What is the current basis and the likely gain on a sale. Is long term care foreseeable in the next five years. Does the property carry a mortgage, and what does the lender say about a transfer. Which exemptions are currently applied.
Answer those with an accountant and an estate attorney, then choose an instrument. See the four routes compared. We handle the execution and the recording once the decision is made.
If a lender is involved
Speak to the lender before recording anything. Most mortgages contain a due on sale clause allowing the lender to demand full repayment when the property is transferred.
Certain transfers are protected by federal law, including some into a revocable trust for the borrower’s own benefit and some to a spouse or child on the borrower’s death. Many family transfers are not protected, and discovering that after recording is the wrong order.
And whatever the deed says, the loan stays where it is. A parent who transfers a mortgaged house remains liable on the note unless the lender releases them, which normally means a refinance in the new owner’s name.