Selling a House Below Market Value in Texas: Tax Rules

Short answer

Texas has no personal income tax, so federal rules decide. Sell to an unrelated buyer for less and the IRS works from the price you actually receive. Sell to family for less and the gap is treated as a gift: no loss is allowed, and a gift over $19,000 to one person usually means filing Form 709.

Owners sell for less than full value for all kinds of reasons: a house that needs work, a deadline, or a relative they want to help. The tax question is what the IRS does with the gap between the price and the value. The answer turns almost entirely on who the buyer is. This guide covers the federal rules, since Texas has no personal income tax. If the house is in Dallas, Tarrant, Collin or Denton County, our DFW guide to below-market sales covers the local value records and county filings.

Two kinds of below-market sale

People use "below market" to mean two different things, and the IRS treats them differently:

A discount to an unrelated buyer. You take less because the house needs work, because you want a quick close, or because you do not want showings. The buyer is a stranger, and the price is simply what the deal is worth to you.
A discount to family or a friend. You set the price low on purpose to help the buyer. Part of the deal is a sale and part of it is a gift.

The first is an ordinary sale. The second brings in the gift tax rules and changes the buyer's tax basis.

Selling to an unrelated buyer for less

For an ordinary sale, IRS Publication 523 (2025) starts with the amount realized: the selling price minus your selling expenses. Subtract your adjusted basis, which is roughly what you paid plus improvements, and the result is your gain or loss. The value you think the house "should" have sold for does not enter the math. A lower price just means a smaller gain.

Two rules from Publication 523 matter most:

The home-sale exclusion. If you owned the home and lived in it as your main home for at least 24 months of the 5 years before the sale, you may exclude up to $250,000 of gain, or $500,000 for married couples filing jointly.
No deduction for a loss. If your adjusted basis is higher than the amount realized, you sold at a loss. You cannot deduct it, but you also owe no tax on the money you received.

If the title company issues you a Form 1099-S, Publication 523 says you report the sale on Form 8949 even when no gain is taxable. Keep your closing statement; it shows the price and the selling expenses. Our guide to who pays closing costs in Texas explains the lines you will see on it.

Selling to family for less: part sale, part gift

The IRS gift tax page says it plainly: if you sell something for less than its full value, you may be making a gift. The same page says the tax applies whether or not you intended the transfer as a gift. IRS Publication 544 (2025) calls this a bargain sale. The deal is split into two pieces, a sale for the price paid and a gift of the rest.

The seller's side of a bargain sale works like this, under Publication 544 and Treasury Regulation 1.1001-1(e):

You have a gain if the price you receive is more than your adjusted basis.
You do not get a loss if the price is less than your adjusted basis.
The gift is the fair market value minus the price.

The regulation gives its own example. A parent transfers property worth $90,000 to a son for $60,000. The parent's adjusted basis is $30,000. The parent has a $30,000 gain (the $60,000 received minus the $30,000 basis) and has made a $30,000 gift (the $90,000 value minus the $60,000 price). If the property is your main home, the Publication 523 exclusion may apply to that gain; a CPA can confirm how it fits your facts.

Losses between relatives: Publication 544 separately says a loss on a sale between related persons is not deductible. Related persons include your brothers and sisters, half brothers and half sisters, spouse, ancestors such as parents and grandparents, and lineal descendants such as children and grandchildren.

When a family discount means filing Form 709

The gift part of a bargain sale is measured the same way as a cash gift. The IRS FAQ on gift taxes lists the annual exclusion per recipient as $19,000 for 2025 and $19,000 for 2026. Spouses who give together can cover $38,000 per recipient.

The Instructions for Form 709 (2025) say you generally must file a gift tax return if your gifts to one person in 2025 totaled more than $19,000, other than gifts to your spouse. A few more points from those instructions and the FAQ:

Community property counts half and half. A gift of community property is treated as made one-half by each spouse, and each spouse must file.
The due date is April 15 of the year after the gift, moved to the next business day when it falls on a weekend or holiday.
The donor generally pays. The FAQ says the donor is responsible for any gift tax unless the recipient agrees to pay under a special arrangement.
Filing is not the same as owing. U.S. citizens and residents must apply their available credit against gift tax on the return. That credit is tied to the basic exclusion amount, which the IRS lists as $15,000,000 for gifts made in 2026 under Public Law 119-21.

So a parent who sells a house to a child well below value may have a return to file even if no gift tax is due. Missing the return is the more common problem than the tax itself.

What the buyer's basis becomes

The discount does not only affect the seller. It sets the buyer's basis, which decides the buyer's gain when they sell later. Treasury Regulation 1.1015-4 says the buyer in a part-gift, part-sale transfer starts with the greater of what they paid or the seller's adjusted basis, plus any allowed gift tax adjustment. For figuring a loss later, that basis cannot be more than the fair market value at the time of the transfer.

Compare that with inheriting. IRS Publication 551 says the basis of inherited property is generally its fair market value on the date of death, or on the alternate valuation date if the estate uses one. A child who buys a house cheaply from a living parent may end up with a much lower basis than one who inherits the same house. That trade-off is worth running past a CPA before the deed is signed. If the house is already inherited, our page on selling an inherited house in Texas covers the next steps.

Texas state tax: none on the sale itself

The Texas Comptroller states that Texas does not have a personal income tax. There is no state return on which a home sale gain is reported. Property taxes are separate: the current year's taxes are prorated at closing, and any past-due taxes come out of the proceeds. A below-market price does not change those.

A Medicaid warning for family sales

A discount sale to family can also matter if the seller may later need nursing home care paid by Medicaid. The Texas HHSC Medicaid handbook (section I-1200) says that if 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-2100 sets a 60-month look-back from the later of institutionalization or the Medicaid application. If a parent's health is a factor, talk to an elder-law attorney before setting a family price.

Records to keep after a below-market sale

The signed closing statement and the deed.
Evidence of fair market value on the sale date, such as an appraisal.
Your basis records: the purchase closing statement and receipts for improvements.
Any Form 1099-S you receive.
A copy of any Form 709 you file, plus a note of the value and price it reports.

This page explains what the IRS publications and regulations say. It is not tax advice. A CPA or tax attorney should look at your numbers before you price a sale to family.

Selling to Cash Home Advisors

If you are taking a discount because the house needs repairs or you need to move fast, a cash sale is one option. Cash Home Advisors is based in Fort Worth. We can close in 7–14 days, and we pay all closing costs. You see the closing statement before you sign, so you can hand your CPA the exact price and expenses.

You can request a cash offer, read how our process works, or see the kinds of houses we buy. More selling guides are in our selling category.

Want a cash offer instead?

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

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Frequently asked questions

Can I deduct a loss if I sell my Texas home for less than I paid?

Not on your main home. IRS Publication 523 (2025) says a loss on the sale of your home cannot be deducted, although you also owe no tax on the money you received. If the buyer is a related person, Publication 544 separately disallows a loss on the sale.

Do I owe gift tax if I sell my house to my son for less than it is worth?

The difference between the value and the price is a gift. For 2025 gifts, the Form 709 instructions say you generally must file if your gifts to one person total more than $19,000. Filing is not the same as paying: the return applies a credit tied to the basic exclusion amount first. The donor, not the buyer, is generally responsible for any gift tax.

Does Texas tax the profit when I sell my house?

Texas does not have a personal income tax, according to the Texas Comptroller. The federal income tax rules in IRS Publication 523 still apply, and property taxes are a separate matter handled by your county.

What tax basis does my child get if I sell them the house for a bargain price?

Under Treasury Regulation 1.1015-4, the child's basis is generally the greater of what the child paid or your adjusted basis, plus any allowed gift tax adjustment. For figuring a loss later, that basis cannot exceed the home's fair market value at the time of the sale.

Sources

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