What Happens If I Sell a House for a Dollar?

Selling a house for a nominal amount, such as a dollar, involves transferring property for a value significantly below its fair market worth. While legally permissible, these “nominal sales” carry complex tax and financial implications. Understanding these factors is important for both the seller and the buyer.

Legal Foundations of a Nominal Sale

Contract law requires “consideration” for an agreement to be legally binding. Consideration is something of value exchanged, and even a nominal amount like one dollar is generally accepted as valid. This allows a deed to be executed and recorded, formally changing ownership. While legally permitted, the focus shifts to the financial disparities involved.

Property transfers use various deeds, each offering different buyer protection. A quitclaim deed transfers the seller’s interest without title guarantees, offering the least protection. A special warranty deed provides a limited warranty against seller-caused title defects. A general warranty deed offers the most comprehensive protection, assuring the buyer against all title defects. Any of these deeds can be used, but the chosen deed impacts the buyer’s future legal recourse.

The concern in a nominal sale is the significant difference between the low sale price and the property’s fair market value (FMV). This valuation gap triggers tax and financial implications not present in a standard market-value transaction. While the legal transfer is straightforward, the economic reality introduces complexities.

Tax Implications for the Seller

When property sells for less than its fair market value, the Internal Revenue Service (IRS) often views the difference as a gift from seller to buyer. For example, if a $300,000 house sells for $1, the seller is considered to have made a $299,999 gift. This triggers potential gift tax considerations for the seller, who is responsible for any gift tax due.

The IRS provides an annual gift tax exclusion, allowing individuals to give a certain amount each year without incurring gift tax or requiring a gift tax return. For 2025, this exclusion is $19,000 per recipient. Any gift exceeding this amount must be reported on IRS Form 709. Actual gift tax is generally not owed unless total cumulative taxable gifts exceed the lifetime gift tax exemption.

The lifetime gift tax exemption is a larger threshold applying to the total gifts an individual can make without incurring gift tax. For 2025, this exemption is $13.99 million per individual. The gift amount exceeding the annual exclusion reduces this lifetime exemption. Gift tax becomes payable only if total taxable gifts over a lifetime surpass this $13.99 million threshold.

Beyond gift tax, a nominal sale also impacts the seller’s capital gains tax. Though the seller receives minimal cash, the transaction is a “bargain sale,” part gift and part sale. The seller may owe capital gains tax on the “sale” portion if the amount received exceeds their adjusted basis. The adjusted basis includes the original purchase price plus improvements. Thus, even a dollar sale could result in a taxable gain if the original basis was very low.

Tax Implications for the Buyer

For the buyer, a nominal sale’s tax implication involves establishing their “cost basis” for the property. This basis calculates capital gains or losses when the buyer sells. In a bargain sale or gift, the buyer’s basis is generally the greater of the amount paid or the seller’s adjusted basis at transfer.

This rule can lead to a lower basis for the buyer compared to an arm’s-length transaction. For example, if a property purchased for $1 had a seller’s adjusted basis of $50,000, the buyer’s basis would typically be $50,000. This lower basis means that when the buyer eventually sells the property, the difference between the sale price and this lower basis will result in a larger taxable capital gain. This contrasts with property received through inheritance, which usually benefits from a “step-up in basis” to the property’s fair market value at the time of the original owner’s death, potentially reducing future capital gains tax for the heir.

Any gift tax paid by the donor attributable to the property’s appreciation can be added to the buyer’s basis. The buyer inherits the seller’s low basis, which can result in substantial tax liability upon a future sale, even if they paid only a nominal amount.

Additional Financial and Procedural Considerations

Even with a nominal sale price, standard closing costs apply. These expenses can include:

Title insurance, protecting against title defects.
Transfer taxes, levied by local or state governments.
Recording fees, paid to register the deed.
Professional fees for attorneys, real estate agents (if involved), and property appraisals.

These costs, ranging from 2% to 5% of the property’s value, must be paid by either the buyer or seller, as negotiated.

Sellers must consider the “due-on-sale” clause in mortgage agreements. This clause stipulates that if the property is sold or transferred, the entire outstanding mortgage balance becomes immediately due. Transferring a mortgaged property for a nominal sum, especially to a family member, can trigger this clause, potentially forcing the seller to pay off a debt they may not be prepared for. Lenders enforce this clause to protect their security interest.

Property taxes remain an ongoing obligation, regardless of the sale price. These taxes are assessed annually based on the property’s assessed value, determined by local tax authorities. The new owner assumes responsibility for these recurring payments.

Ensuring a clear title is important in any property transfer. Existing liens, such as tax, judgment, or mechanic’s liens, remain attached to the property even after a nominal sale. Buyers must conduct due diligence to identify any encumbrances affecting their ownership rights.

Such a transaction, especially if the seller faces financial difficulties, could face scrutiny from creditors. Creditors might challenge the transfer as a “fraudulent conveyance” if the property was sold for less than fair market value to avoid satisfying debts. This challenge could lead to legal complications and potentially undo the transfer.