Selling Second Homes Below Market Rate
Did you know?
Let’s say you need, or want, to sell your second home somewhere below the fair market value for the real estate. Any stranger or casual acquaintance who takes your offer can shake your hand and take possession of the property knowing they got a really good deal.
If your kids or another close relative decides the deal is too good to pass up, your sale to them will probably raise the interest of the Internal Revenue Service.
You can, of course, use your $11,000 gift-tax exemption to further reduce the taxable amount. Let’s say the second home has a market value of $100,000 and you sell it to your son and his wife for $55,000. The IRS steps in and decides that $45,000 difference amount to a gift. Both you and your spouse can make tax free $11,000 gifts to your son and daughter-in-law consuming $44,000 of the $45,000 gift. The end result is a $1000 taxable gift and that can be folded into your $1 million annual gift tax exclusion.
The important thing is to be aware of transactions that will arouse the interest of the IRS and structure the sale accordingly, on firm legal ground. You may wish to consult a tax attorney or accountant.
