Selling a House to Your Child Below Market Value in Texas

Short answer

You can sell your Texas house to your child at any price you both agree on. The discount below market value counts as a gift, so a gift tax return may be due, your child inherits part of your tax basis instead of a fresh one, and the transfer can matter for Medicaid for 60 months.

Parents sell houses to their children for less than market value all the time, to help with a first home or to keep a family place in the family. The price is simply what you and your child write into the contract. But the discount is not invisible: the IRS, your child's future tax bill and the Medicaid program each see it. This guide covers the statewide rules. For county recording, appraisal district and local help in Dallas, Tarrant, Collin or Denton County, see our DFW guide to selling a house to your child.

The discount is a gift of equity

The IRS defines a gift as any transfer to a person where full consideration, measured in money or money's worth, is not received in return. When your child pays less than the house is worth, the difference is a gift. People often call it a gift of equity.

So the first job is to pin down the value. A licensed appraisal close to the sale date is the cleanest record. Without one, you are guessing at the size of the gift, and so is the IRS.

Your side: gain, but never a loss

Treasury Regulation 1.1001-1(e) covers a transfer that is part sale and part gift. You have a gain to the extent the price your child pays is more than your adjusted basis. If the price is less than your basis, you do not get a loss. IRS Publication 544 adds a second bar: a loss on a sale between related persons, including parents and children, is not deductible.

If the house is your main home, look at the home-sale exclusion in IRS Publication 523 (2025). If you owned and lived in the home for at least 24 months of the 5 years before the sale, you may be able to exclude up to $250,000 of gain, or $500,000 if married filing jointly.

The gift tax return

The gift part of the deal is reported like any other gift. For gifts made in 2025, the Instructions for Form 709 say you generally must file if your gifts to one person total more than $19,000, not counting gifts to your spouse. The IRS lists the same $19,000 annual exclusion for 2026. A few details that catch families off guard:

Both spouses may file. If the house is community property, the gift is treated as made one-half by each spouse, and each spouse must file a return.
The deadline is April 15 of the year after the sale.
The parent is the one who pays. The IRS says the donor is generally responsible for gift tax.
A return is not a bill. The return applies a credit tied to the basic exclusion amount, which the IRS lists as $15,000,000 for gifts made in 2026.

Your child's side: the basis trade-off

This is the part families most often miss. Treasury Regulation 1.1015-4 says that in a part-gift, part-sale transfer, the child's starting basis is the greater of the price the child paid or your adjusted basis, plus any allowed gift tax adjustment. The regulation's own example: a parent with a $60,000 basis sells property worth $90,000 to a son for $30,000. The son's basis is $60,000, the parent's basis, not the $90,000 value.

Now compare an inheritance. IRS Publication 551 says inherited property generally takes a basis equal to its fair market value on the date of death. A child who inherits a house and sells it soon after may have little or no gain. A child who bought the same house cheaply years earlier may face a much larger gain on the same sale. If your child plans to keep the house for life, this may not matter. If they might sell, have a CPA run both versions.

Transfer on death deed: the alternative many families consider

Texas lets an owner record a transfer on death deed that passes real property to named beneficiaries at the owner's death (Estates Code Sec. 114.051). Key features under Chapter 114:

It is revocable, even if the deed says otherwise (Sec. 114.052).
It must be recorded in the county where the property is located before the owner dies (Sec. 114.055).
It needs no consideration and no acceptance by the child while the owner is alive (Sec. 114.056).
During the owner's life it does not limit the owner's right to sell or borrow against the property (Sec. 114.101).

A transfer on death deed is not a sale and puts no money in anyone's hands today. Whether it fits better than a discounted sale depends on your taxes, your health and your family. That is a question for a Texas attorney and a CPA.

If there is still a mortgage on the house

Most home loans have a due-on-sale clause. Federal law limits it in family transfers. Under 12 U.S.C. 1701j-3(d)(6), on a loan secured by a home with fewer than five units, a lender may not exercise a due-on-sale clause on a transfer where the borrower's spouse or children become owners. That restriction does not move the loan into your child's name or end your liability on it. In a typical sale where your child gets a new loan, the title company pays off your loan at closing and the question goes away.

Medicaid: the 60-month look-back

If there is any chance you will need nursing home care paid by Medicaid, the discount needs a closer look. The Texas HHSC Medicaid handbook says that when a transfer of assets for less than fair market value is found, Medicaid must withhold payment for nursing facility care and certain other long-term care services for a penalty period (section I-1200). The look-back is 60 months from the later of institutionalization or the Medicaid application (section I-2100).

Home transfers HHSC lists as not penalized (handbook section I-3100): to a spouse who lives in the home; to a child under 21 or a child who is disabled; to a sibling with an equity interest who lived there at least one year before the person's institutionalization; to a son or daughter who lived there at least two years before institutionalization and provided care that prevented it; and certain enhanced life estate or transfer on death deeds approved by the HHSC regional attorney, when the person also signs a statement that they intend to return to the home. An elder-law attorney can tell you whether any of these fits.

Property taxes after the sale

Your homestead exemption does not pass to your child. Tax Code Sec. 11.43 says a homestead exemption, once allowed, applies until the property changes ownership. Your child must file a new application with the county appraisal district if the house will be their home. Any over-65 or disability exemption you had is tied to you as well.

A short checklist before you sign

Get an appraisal and keep it.
Write a sales contract and have a Texas attorney or title company prepare the deed.
Decide whether your child is getting a loan or paying you over time.
Ask a CPA to compare the sale against a transfer on death deed.
Calendar the April 15 Form 709 deadline if the gift is over the annual exclusion.
If long-term care is possible, see an elder-law attorney first.

This page explains what the IRS, Texas statutes and the HHSC handbook say. It is not legal or tax advice.

When the family sale does not work out

Sometimes the child cannot qualify for a loan, or the family decides it would rather split cash. Cash Home Advisors is based in Fort Worth, and we can close in 7–14 days. We pay all closing costs, and you see the closing statement before you sign.

You can request a cash offer, read how our process works, or see why sellers choose us. If you are weighing a discount sale to someone outside the family, our guide to the tax rules for selling below market value covers that case.

Want a cash offer instead?

We buy Texas houses as-is, pay all closing costs, and can close in 7–14 days.

Get my cash offer or call (817) 635-0743

Frequently asked questions

Can I sell my house to my child for a token price in Texas?

The price is whatever you and your child agree to in the contract. The catch is what happens to the discount: the IRS treats the part of the value you did not charge as a gift, and the Texas Medicaid program treats it as a transfer for less than fair market value, so a low price carries tax and benefit consequences.

Does my child have to pay gift tax on the discount?

Generally no. The IRS FAQ on gift taxes says the donor is generally responsible for paying gift tax. The parent who gives the discount is the donor, and the parent may need to file Form 709.

Can the bank call my loan if I deed the house to my child?

Federal law, 12 U.S.C. 1701j-3(d)(6), says a lender may not use a due-on-sale clause on a loan secured by a home of fewer than five units when the borrower's children become owners. That rule limits the lender's option; it does not move the loan into your child's name. Talk to your lender and a Texas attorney before deeding a mortgaged house.

Is a transfer on death deed better than selling to my child?

It depends on your goals. A Texas transfer on death deed passes the house only at your death, can be revoked, and leaves you free to sell or borrow against the house while you live (Estates Code Sec. 114.052 and 114.101). How it affects taxes and Medicaid for your family is a question for a CPA and an elder-law attorney.

Sources

General information, not legal or tax advice. Talk to a Texas attorney or CPA about your situation.