What Happens If I Sell My House for $1?

Selling a house for a nominal amount, such as $1, is legally permissible but differs significantly from a conventional real estate sale. This type of transfer, often between family members, carries distinct financial and legal implications.

The Nature of a Nominal Sale

A property transfer for $1, or any amount substantially below fair market value, is not considered an arm’s-length transaction. An arm’s-length transaction assumes independent parties negotiating for the best price, a characteristic absent in a nominal sale. This type of transfer lacks the typical exchange of value, known as consideration, found in a contract.

For legal and tax purposes, a nominal transfer is almost always recharacterized as a gift. The Internal Revenue Service (IRS) and state tax authorities will base their assessments on the property’s fair market value at the time of transfer, not the $1 sale price. These transfers are common between related parties, such as parents transferring property to their children.

Tax Implications of a Nominal Sale

Transferring property for a nominal amount has several tax implications for both the donor (transferor) and the recipient (transferee). The difference between the property’s fair market value and the $1 sale price is considered a taxable gift.

Gift Tax

The donor faces potential gift tax liability. For 2025, individuals can gift up to $19,000 per recipient annually without reporting requirements. If the fair market value exceeds this annual exclusion, the donor must file Form 709, United States Gift (and Generation-Skipping Transfer) Tax Return, with the IRS. Any amount exceeding the annual exclusion reduces the donor’s lifetime gift tax exemption, which for 2025 is $13.99 million per individual. Gift tax rates can range from 18% to 40% on amounts exceeding the lifetime exemption.

Capital Gains Tax

The recipient faces potential capital gains tax consequences when they eventually sell the property. Under the “carryover basis” rule for gifted property, the recipient generally assumes the donor’s original cost basis. For example, if the donor purchased the home for $100,000 and its fair market value is $300,000 at the time of the $1 transfer, the recipient’s basis remains $100,000. This means the recipient could face a higher capital gains tax liability upon a future sale, as their taxable gain would be calculated from the original, lower basis.

Property Tax Reassessment

Property tax reassessment is another consideration for the new owner. Many jurisdictions may reassess the property’s value upon transfer of ownership, regardless of the sale price. This reassessment would be based on the property’s fair market value, potentially leading to an increase in annual property taxes for the new owner.

Mortgage and Lien Considerations

An existing mortgage on the property presents a significant hurdle in a nominal sale due to the common “due-on-sale” clause. This clause, present in most mortgage agreements, grants the lender the right to demand immediate repayment of the entire outstanding loan balance if the property is sold or transferred. A $1 sale typically triggers this clause.

Due-on-Sale Clause

If the lender activates the due-on-sale clause, the new owner would need to pay off the mortgage in full or refinance it. Failure to satisfy this demand could lead to foreclosure proceedings. It is important to address the existing mortgage directly with the lender before proceeding with any nominal transfer.

Existing Liens

Any existing liens on the property, such as tax liens, judgment liens, or mechanic’s liens, typically “run with the land.” This means these debts remain attached to the property and transfer to the new owner, regardless of the $1 sale price. A thorough title search before the transfer identifies such encumbrances.

Title Insurance

Obtaining title insurance is a step for the new owner, even in a nominal sale. Title insurance protects against financial loss from defects in the property’s title, such as undiscovered liens, errors in public records, or claims of ownership by others. While a title search reveals known issues, title insurance provides additional protection against unforeseen problems that could arise after the transfer.

Formalizing the Property Transfer

To legally transfer property ownership following a nominal sale, a deed is necessary. This document formally conveys ownership from the grantor to the grantee. Common types include a Quitclaim Deed, often used in family transfers as it conveys interest without title guarantees, and a Warranty Deed, which offers higher protection by warranting clear title.

Deed Preparation

The deed must include the property’s legal description, names of both parties, and the stated nominal consideration of $1. Grantors must sign the deed before a notary public.

Recording the Deed

Recording the deed with the county recorder’s or clerk’s office makes the transfer public record, providing notice of ownership change and protecting the new owner’s interest. Recording fees, averaging around $125, are typically paid at this time. Some jurisdictions may also levy transfer taxes, a percentage of the property’s fair market value, even for nominal sales.