A Guide To Gifts Of Equity: What Taxes To Expect, How To Write A Gift Letter And More

Feb 2, 2024

8-minute read

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A gift of equity can be a great benefit for a potential homeowner. But what is a gift of equity?

This is when someone, usually a family member, sells a home to buyers for a price below market value, often far below. It’s a way for owners to gift real estate to their children or other relatives even if these buyers don’t have enough cash to cover a down payment or the larger monthly payment that would come from a home sold at market value.

It’s similar to a down payment gift, when a family member provides home buyers cash that they can put toward the down payment of a home.

But what is the gift of equity process? What taxes come with providing or receiving a gift of equity? Here’s a look at how home equity gifts work and the potential pitfalls to avoid: