Since this is the gift-giving season, I thought it appropriate to share the Gift Of Equity in this investing term Tuesday.

The Gift Of Equity refers to the sale of a home to a family member at a price below the current market value. Sometimes it can be a sale to someone the with whom seller has had a relationship previously.

The actual gift of equity stems from the difference between the sale price and the market value – that’s the equity, and it’s being given to the buyer.

It’s perfectly legal and most lenders simply count the equity as part of a down payment on the home. It does require documentation however, in the form of a gift of equity letter that must be signed by both the seller and the buyer.

There may also be tax consequences and it could affect the asset’s cost basis for the home buyer and carry capital gains implication for the seller so be sure to research those aspects if you are considering giving the gift of equity this holiday season.

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One Response to “Investing Term Tuesday – Gift Of Equity.”

1. AliceKay says:

   December 22, 2009 at 11:04 am

   Kudo to the post and interesting comment, i also bookmarked your RSS feeds for more updates.