Gift Of Equity Calculator
Quickly calculate how much equity you're gifting when selling your home below market value to family.
How Gift Of Equity Calculator Works
A gift of equity happens when you sell your home to a family member or close relative for less than its fair market value. The difference between the actual market value and your sale price becomes the "gift of equity" – essentially free money for the buyer that can be used toward their down payment.
This arrangement helps family members who might not have enough cash for a traditional down payment get into homeownership. Most lenders allow the gift of equity to count as part of the down payment requirement, making it easier for buyers to qualify for a mortgage.
You'll need a professional home appraisal to establish the true market value, and both parties must sign a gift letter declaring that the equity gift doesn't need to be repaid. While it's a generous way to help family, sellers should be aware of potential gift tax implications if the equity amount exceeds annual IRS limits.
Gift Of Equity Calculator Formula Breakdown
Formula
Gift of equity = Market value of the home - Sale price to the buyerVariables Explained
- Market valueThe current fair market value of your home as determined by a professional appraisal. This represents what your home would sell for in the open market between willing buyers and sellers. You'll need to pay for this appraisal as part of the gift of equity process.
- Sale priceThe actual price you're selling the home to your family member for. This can be any amount you choose – from a symbolic $1 to just under market value. The lower this price, the larger the gift of equity becomes.
Example Calculation
Given:
- Market value: $300,000
- Sale price: $250,000
Calculation:
$300,000 - $250,000 = $50,000Result:
$50,000Explanation
In this example, parents are selling their home to their adult child for $250,000 even though it's worth $300,000. The $50,000 gift of equity can be used toward the child's down payment, making homeownership more affordable while staying under the 2025 gift tax limits for a married couple ($38,000 combined annual exclusion).
Tips for Using Gift Of Equity Calculator
- 💡Get a professional home appraisal before setting your sale price to accurately document the market value and ensure your gift amount is calculated correctly for tax purposes.
- 💡Consider gift tax implications: For 2025, you can give up to $19,000 per person ($38,000 for married couples) without triggering gift tax reporting requirements – larger gifts count against your lifetime exemption of $13.99 million.
- 💡Remember that the buyer still needs to qualify for a mortgage if the gift doesn't cover the entire purchase price, so ensure they meet credit and income requirements beforehand.
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