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sale of property to family member at below market price

Recently my brother purchased a piece of land from mother well below market value. For the sake of this discussion, the original purchase price of the land was approximately $50,000. The market value of the property is approximately $30,000.  He bought the property for $5,000.  Given this is a non-arm's length transaction, what are the tax implications for my mother?  I'm assuming  there are gift tax implication on this transaction.  Thanks in advance.

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4 Replies

sale of property to family member at below market price

She needs to file a gift tax return since she gifted equity in excess of $17K ...


Turbo Tax does not support the gift tax form 709, but here is a link:






sale of property to family member at below market price

The difference in purchase price is a gift to the relative.  If the gift is more than $17,000, a form 709 gift tax return must be filed by the giver. Actual payment of gift tax is rarely due, unless the lifetime total of the giver’s gifts is more than $13 million, but the form must be filed to track the gift against the person’s lifetime total.

The other issue that was not mentioned, is what will be the recipient‘s cost basis? Cost basis is used to determine taxable capital gains if and when the property is sold.  Your brother should document the cost basis now while it is easy to get all the required proof from your mother.  Normally, cost basis is what a person pays for a piece of property, or in the case of a gift, cost basis is the cost basis of the original owner.  However, I’m not actually sure what the cost basis is in the situation. It might be $50,000, the original cost. It might be $5000, the purchase price. Or it might be something else.  In the case of gifts, the cost basis is also sometimes affected by the ultimate selling price, if and when the property is sold.  We need to ask another expert.  




*Answers are correct to the best of my ability at the time of posting but do not constitute legal or tax advice.*

sale of property to family member at below market price

sale of property to family member at below market price

The transaction at issue here is in part a gift and in part a sale. 


As a result, Section 1.1015-4 controls with respect to the basis in the hands of the transferee (the brother).


See https://www.law.cornell.edu/cfr/text/26/1.1015-4

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