If a property is worth $45,000 and the parent sells this property to his child for $2,000, are there any...?

Question

tax and/or legal issues regarding such a transaction?

Answer 1

This is a transaction between related parties and there are several rules regarding this.

The property is worth $45K but sold to the related party for less than the value.  The difference in value is considered a gift, and a gift tax return needs to be filed by the donor.  The amount of the gift ($43K) will be subtracted from the lifetime exclusion of the donor.

The donor cannot take a loss by selling to the related party for less than market value.  

If this is a business property, the donee must take the basis of the donor.  He cannot take the selling price as the basis.

When the property is sold  by the donee, he must figure his gain or loss depending on the basis of the donor.  The $2,000 amount paid does not figure into the basis computation.  The basis is determined by the basis of a gift rules which I will omit because they are complicated.  

In other words, there are rules which prohibit manipulation of the taxes due by means of transferring property between related parties for less than market value.

Answer 2

The difference of $43,000 would be considered a Gift.

A Gift Tax Return would need to be prepared by the giver (seller).  Gift taxes may or may not need to be paid.  It would depend on how much the giver has given away in their lifetime.

Answer 3

no since it is a leagal transfer. Although it is not at arms length transaction. Now there will be closing cost and deed transfer cost etc at time of close.