Gift of Equity
Calculate gift of equity when a seller sells below market value. Free calculator shows gift amount, gifted equity percentage, and breakdown for real estate transactions.
About This Calculator
The Gift of Equity Calculator helps homebuyers, sellers, and real estate professionals determine the gift of equity amount when a property is sold below its fair market value. This situation commonly occurs when parents sell their home to a child or when relatives sell property to family members at a discount. The calculator instantly computes the gifted equity amount and the gifted equity percentage, showing you exactly how much value is being transferred.
The gift of equity is calculated using a simple formula: Gift of Equity = Market Value - Sale Price. For example, if a property worth $500,000 is sold for $450,000, the gift of equity is $50,000, which represents 10% of the market value. This gifted amount can often be used by the buyer as part of their down payment, making homeownership more accessible for family members.
Regional Notes
India: Gift of equity transactions are common among family members. The buyer may need to pay stamp duty on the market value rather than the sale price in some states. Under Section 56(2)(x) of the Income Tax Act, gifts exceeding ₹50,000 from non-relatives are taxable as income. The seller must pay capital gains tax on the difference between the sale price and their acquisition cost.
United States: The IRS considers the gift of equity as a gift for tax purposes. Sellers must file Form 709 if the gift exceeds the annual exclusion ($18,000 in 2024). Most lenders accept gifted equity as a down payment, though specific documentation is required. The buyer's loan-to-value ratio is based on the lower sale price, which can help avoid PMI.
United Kingdom: HMRC treats the gift of equity as a Potentially Exempt Transfer (PET) for Inheritance Tax purposes. SDLT is charged on the market value of the property, not the discounted price. Legal documentation must reflect the discounted sale to avoid SDLT challenges. The seller must survive 7 years for the gift to fall outside IHT.
Frequently Asked Questions
What is a gift of equity in real estate?
A gift of equity occurs when a property seller sells their home below the fair market value to a buyer, typically a family member or relative. The difference between the market value and the reduced sale price is considered a gift of equity, which the buyer can use toward their down payment.
How is gift of equity calculated?
Gift of equity is calculated by subtracting the sale price from the market value of the property. The formula is: Gift of Equity = Market Value - Sale Price. For example, if a house worth ₹50,00,000 is sold for ₹45,00,000, the gift of equity is ₹5,00,000.
Can a gift of equity be used as a down payment?
Yes, a gift of equity can be used as the buyer's down payment in many cases. Since the gifted equity is built into the transaction, it eliminates the need for a separate gift letter from the seller. However, lenders may require documentation and the buyer may still need to contribute some of their own funds depending on the loan type.
Is a gift of equity taxable in India?
In India, gift of equity may be subject to income tax under the head Capital Gains for the seller. The seller must pay capital gains tax on the difference between the market value and the sale price. For the buyer, the gift of equity may be taxable under Section 56(2)(x) of the Income Tax Act if the difference exceeds ₹50,000, unless the transaction qualifies for exemption as a relative gift.
Is a gift of equity taxable in the US?
In the US, the gift of equity is considered a gift for tax purposes. If the amount exceeds the annual gift tax exclusion ($18,000 per recipient in 2024), the seller must file a gift tax return (Form 709). However, the seller likely won't owe gift tax unless the total lifetime gifts exceed the lifetime exemption ($13.61 million in 2024). The buyer does not pay income tax on the gifted equity.
Is a gift of equity taxable in the UK?
In the UK, a gift of equity may be subject to Inheritance Tax (IHT) if the seller dies within 7 years of the gift. It is considered a Potentially Exempt Transfer (PET). The sale must be at the actual market value for Stamp Duty Land Tax (SDLT) purposes, meaning SDLT is calculated on the market value, not the discounted price.
What is the difference between market value and sale price?
Market value is the estimated amount a property would sell for on the open market under normal conditions, determined by comparable sales, location, and property condition. Sale price is the actual price agreed upon between the buyer and seller. In a gift of equity transaction, the sale price is intentionally set below market value.
Can a gift of equity be negative?
Yes, a gift of equity can be negative if the sale price exceeds the market value. However, this scenario is unlikely in a gift of equity situation since the purpose is to sell below market value to assist the buyer. A negative gift of equity would mean the buyer is paying more than the property is worth.