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You sell the house to your daughter for what is left on the mortgage. The deed says sale. The Internal Revenue Code says sale plus gift, and the gift is the part nobody has measured.
Last reviewed September 2026
Your daughter is renting. You own a house outright, or nearly. Selling it to her for what is left on the mortgage — or for a friendly round number — solves her problem without anybody writing a check they cannot write.
It is a good instinct and a common one. It also creates a gift, whether or not anyone intended to make one, and the size of that gift depends on a number nobody in the transaction has established.
Under Treas. Reg. §25.2512-8, gift tax applies to sales, exchanges and other dispositions of property for consideration, to the extent the value of the property transferred exceeds the value in money or money’s worth of the consideration given for it.
Put plainly: sell a $500,000 house to your child for $300,000 and you have made a $200,000 gift. The deed says sale. The Code says sale plus gift, and taxes the gift half.
The same regulation adds a line worth reading twice. Consideration that cannot be reduced to a value in money or money’s worth — it gives love and affection as its example — is disregarded entirely. It does not reduce the gift. It does not count at all.
Treas. Reg. §25.2512-8 disregards consideration that cannot be reduced to money or money’s worth, naming love and affection specifically. It does not reduce the gift by a dollar.
The regulation does carve out transfers made in the ordinary course of business, which it defines as transactions that are bona fide, at arm’s length, and free from donative intent. Those are treated as made for adequate and full consideration even when one side got the better end.
A parent selling to a child at a deliberate discount is not that. The discount is the point. Donative intent is the reason the price is what it is, which places the transaction squarely outside the exception rather than inside it.
The gift is the spread between fair market value and what was actually paid. The price is known — it is on the settlement statement. Market value is not, and in Texas it is unusually hard to establish informally, because sale prices are not public record here. There is no filed number to point at, no recorded consideration a CPA can look up.
That is the practical reason these transactions need an appraisal rather than an estimate. Not because the family disagrees, but because the second half of the subtraction does not exist until someone develops it.
Once there is a gift, the reporting rules apply, including the one most people never hear about. Under Treas. Reg. §301.6501(c)-1(f), the three-year period for the IRS to assess gift tax only begins when the gift is adequately disclosed on the return. If it is not, the tax may be assessed at any time — with no closing date at all.
A bargain sale to a family member is exactly the transaction where that matters, because the reported gift is a computed number rather than an obvious one. Documenting how market value was determined is what closes the file. I wrote about how that rule works in more detail on the gift tax page.
Texas is a non-disclosure state: sale prices are not public record. Without MLS access there is no reliable way to see what comparable homes actually closed at, which is precisely the gap an appraisal fills in a family transfer.
A gift generally carries the donor’s basis to the recipient under Internal Revenue Code §1015, rather than resetting. Property passing at death generally receives a basis adjusted to value at the date of death under §1014.
The consequence, in plain terms: a house your parents bought in 1988 and gave you in 2026 may come with their 1988 basis attached, and the gain shows up whenever you sell. The same house inherited might not. Which route makes sense depends on the size of the estate, the family’s plans for the property, and a dozen facts I have no business weighing.
That is a conversation for your CPA, and it is worth having before the deed is signed rather than after. I raise it only because people frequently arrive at the appraisal having already decided, and the decision was made on the wrong axis — how to move the house, rather than what it costs to move it that way.
The address, the intended use, whether the sale has closed and on what date, and the name of the CPA or attorney handling the return. If the sale already happened, the effective date is the closing date and the assignment is retrospective.
I develop an opinion of market value. I do not set your sale price, tell you what discount is acceptable, or advise on whether to structure the transfer as a sale, a gift, or something else. Those are decisions for you and your advisors. What I provide is the number the whole calculation rests on, developed under USPAP and documented so it can be examined.
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To the extent market value exceeds what they paid, yes. Treas. Reg. §25.2512-8 treats a sale for less than adequate and full consideration as a gift of the difference. The deed being a sale does not change that; the Code looks at the economics rather than the label.
No. The regulation specifically disregards consideration that cannot be reduced to a value in money or money’s worth, and gives love and affection as its example. It does not offset the gift at all.
It applies to transfers that are bona fide, at arm’s length and free from donative intent. A deliberate family discount fails the third test by definition, since the discount is the purpose of the price.
That is what the appraisal establishes, and in Texas it is genuinely hard to do any other way. Texas does not make sale prices public, so there is no recorded figure to rely on and no way to verify what comparable homes closed at without market data access.
Your CPA decides that. The annual exclusion is $19,000 per recipient in 2026, so a small discount may fall under it, and a typical family discount on a house will not. Establish the value first; the filing question follows from it.
Gift tax is generally the donor’s obligation, not the recipient’s, and with a $15,000,000 lifetime exemption most families owe nothing. The more consequential issue for your child is usually basis, not gift tax — ask your CPA how §1015 applies to the gift portion.
Yes. The effective date becomes the closing date and the work is retrospective, which is routine. It depends more heavily on documentation of the property’s condition at that time, so photographs, the listing if there was one, and any inspection reports help.
No. I can tell you what it is worth. What you charge is your decision, and the tax consequences of the gap are your CPA’s to explain. Keeping those roles separate is what makes the appraisal worth having.
Written fee quote, typically within one business hour. Questions about anything in this article are free, whether or not they turn into an assignment.