Parents often want to help an adult child buy a home or share in family property by selling it for less than fair market value. The idea is simple and generous. However, there may be unintended consequences. A below-market sale can trigger gift and income tax issues, complicate estate plans, and spark family disputes. Addressing these risks before transferring property for less than it is worth can prevent surprise tax bills and strained relationships.

When a Sale Becomes a Gift

Suppose a parent sells real property worth $500,000 to a child for only $300,000. The transaction is generally treated as part sale and part gift: the $300,000 is the sale price, and the $200,000 discount is a gift. A gift of that size typically requires the gifting party to file a federal gift-tax return. For 2026, the federal annual gift-tax exclusion is $19,000 per recipient. Even if no gift tax is owed immediately, the gift reduces the parent’s remaining lifetime gift and estate-tax exemption.

Capital Gains Can Still Apply

A bargain sale can create income tax for the seller. The parent must allocate tax basis to the sale portion and determine whether the amount received exceeds that basis. If it does, the parent may recognize taxable capital gain. The analysis differs for a principal residence, rental property, farmland, or investment property, and those differences can materially change the tax result.

The Child’s Basis—and Future Tax Bill

For the child, tax basis matters. Property received by gift generally carries over the parent’s tax basis rather than resetting to current fair market value. If the child later sells, that carryover basis can translate into capital gains tax on appreciation that occurred before the transfer. If the child receives real property at a parent’s death instead, the child’s tax basis typically “steps up” to the property’s fair market value as of the parent’s date of death. This higher basis can significantly reduce, or even eliminate, capital gains tax if the child later sells.

Jeopardizing Parents’ Financial Security

Transferring substantial equity can affect the parents’ ability to fund retirement, medical needs, and long-term care for the rest of their lives.  Parents should assess whether their remaining assets will be sufficient to meet foreseeable expenses.

Family Disputes

A sizable discount to one child can lead to resentment among the other children. Families should address whether the transfer is intended as an advance on inheritance or a separate gift, and document the intent to avoid disputes later.

Medicaid Rules

Transfers for less than fair market value can affect Medicaid eligibility in the future and may lead to a period of ineligibility. Timing and documentation can be decisive.

Before transferring valuable Ohio real estate to a child for less than fair market value, consider an independent appraisal and a review by an Ohio real estate attorney and a qualified tax professional. A prudent review should cover the property’s fair market value and tax basis, the child’s intended use, the parent’s financial needs, and the family’s estate-planning goals. Careful planning on the front end is the best defense against unexpected taxes, financial strain, and family conflict. Laribee Law, LLP is here to assist you.

Michael Laribee is a partner in the Medina law firm of Laribee Law, LLP. This article is intended to provide general information about the law. It is not intended to give legal advice. Readers are urged to seek advice from an attorney regarding their specific issues and rights.