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I want to sell a rental property to my brother for a price significantly below market value. I bought the house for $90,000 about 10 years ago and plan to sell it to my brother for the amount that remains on the mortgage, about $50,000. My understanding is I can sell the house for any price I choose. I recognize I cannot deduct a loss for income tax purposes and do not plan to do so. I assume my brother's basis will be the $50,000 purchase price. Does this sale have any tax implications I might not have thought of?
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No. of Recommendations: 0
I want to sell a rental property to my brother for a price significantly below market value. I bought the house for $90,000 about 10 years ago and plan to sell it to my brother for the amount that remains on the mortgage, about $50,000. My understanding is I can sell the house for any price I choose. I recognize I cannot deduct a loss for income tax purposes and do not plan to do so. I assume my brother's basis will be the $50,000 purchase price. Does this sale have any tax implications I might not have thought of?

I believe that the difference between fair market value and the selling price would be a gift from you to your brother. You can give your brother a $10,000 gift every year without any consequence. If you or he are married that can be doubled; if both, quadrupled. Any gift in excess of the annual gift limit counts toward your unified credit (currently equivalent to $675,000 of gifting).

One way you could consider doing this is to have your brother sign a note for the difference, including a reasonable interest rate, and forgive $10,000 of the indebtedness each year until it is exhausted. That way you accomplish what you want and don't take a hit on your unified credit. You would probably want to add a codicil to your will specifying that the entire debt should be forgiven upon your death.
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