{"id":7709,"date":"2026-08-28T23:22:42","date_gmt":"2026-08-29T03:22:42","guid":{"rendered":"https:\/\/www.deeds.com\/articles\/?p=7709"},"modified":"2026-08-28T23:22:43","modified_gmt":"2026-08-29T03:22:43","slug":"giving-your-adult-child-a-gift-of-equity-how-its-done","status":"publish","type":"post","link":"https:\/\/www.deeds.com\/articles\/giving-your-adult-child-a-gift-of-equity-how-its-done\/","title":{"rendered":"Giving Your Adult Child a Gift of Equity: How It\u2019s Done"},"content":{"rendered":"\n
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With a gift of equity, you can sell a home to a family member for less than it\u2019s worth on the market. The difference between what the buyer pays and the actual market value is the gift.<\/p>\n\n\n\n

So you, as the seller, make the gift. It\u2019s your call how much equity to give. Then, if your child is approved for a home loan, your child\u2019s lender will usually apply the amount toward the down payment.<\/p>\n\n\n\n\n\n\n\n

For Example\u2026<\/h2>\n\n\n\n

Your beloved family home is just too much to maintain these days, and you\u2019re ready to downsize.<\/p>\n\n\n\n

Marty, your adult child, is daunted by the local real estate prices, but doesn\u2019t want to move away from family to find an affordable home. You\u2019d be glad to sell your $400,000 home at a discount to Marty. The discount could take care of Marty\u2019s down payment.<\/p>\n\n\n\n

Marty is willing to take out a loan and buy the home for $320,000. The $80,000 discount\u2014a gift of equity\u2014can serve as Marty\u2019s 20% down payment.<\/p>\n\n\n\n

Now, Marty will be able to get mortgage approval and avoid paying private mortgage insurance (PMI)<\/a>, as the gift of equity becomes a 20% down payment.<\/p>\n\n\n\n

As you already know, when the deed to a home is transferred to a new homeowner, the new owner is expected to pay closing costs. These costs are generally lower when the price of a home is lower. With a gift of equity, the sale price is reduced. So, Marty\u2019s burden of closing costs should also be eased. Nice job!<\/p>\n\n\n\n

There are a few limitations to know about. Most mortgage types (including government-backed and conventional loans<\/a>) allow gifts only between family members (as defined by your lender). And the gift of equity can\u2019t be counted toward the home buyer\u2019s cash reserves.<\/p>\n\n\n\n

Is This a Taxable Gift?<\/h2>\n\n\n\n

Every year when you file your tax return, the Internal Revenue Service looks at whether you made any gifts totaling more than the annual<\/em> exclusion.<\/p>\n\n\n\n

At the same time, a gift is part of the total amount you are allowed to set aside from taxes during your life: the lifetime exclusion<\/em>. Currently, you can make gifts that total up to $15 million per person ($30 million for a couple). When you file, you\u2019ll check the IRS website for updates to various caps.<\/p>\n\n\n\n

Basically, it works this way, per the Internal Revenue Service\u2019s current federal gift tax instructions:<\/p>\n\n\n\n