Finance category
Mortgage, loan, investing, tax, and money calculators.
Gift Equity Calculator
In a family real estate transfer, a seller can 'gift equity' by selling below market value. The gift amount counts toward the buyer's down payment — helping them qualify for a mortgage. But the gift may trigger gift tax reporting and reduces the seller's proceeds. This calculator sizes the transaction cleanly.
2026 IRS exclusion
Total gift of equity
$80,000
Tax-free via annual exclusion
$76,000
Amount requiring Form 709
$4,000
Gift credited toward down payment
$20,000
Remaining down payment needed
$0
Loan amount
$380,000
Down payment required (FMV × %)
$20,000
Form 709 filing needed
Yes
How the math works
On a $400K FMV house sold at $320K: gift of equity is $80K. With 2 parent donors gifting 2 children each, tax-free capacity is 4 × $19K = $76K — but within a single child recipient pair it's 2 × $19K = $38K. Excess reportable: $80K − $38K = $42K on Form 709 (no tax unless lifetime exemption exhausted).
Gift of equity typically eliminates the need for any buyer cash down payment. Combined with a 5% mortgage and the parents' gift covering 20% of FMV, this is a clean path for family transfers. Always structure with both a RE attorney and a CPA — lender paperwork is specific.
How to Use
- Enter appraised fair market value and the agreed sale price (below FMV).
- Enter the number of donors and recipients (for gift tax exclusion).
- Enter buyer's loan amount and mortgage rate.
- See gift size, required down payment, mortgage qualification, and tax reporting requirement.
Frequently Asked Questions
How much gift of equity can I give?
Unlimited amount at the contract, but 2026 federal gift tax annual exclusion is $19,000 per recipient per year per donor. A married couple can gift $38K/year to one recipient tax-free. Above that: file Form 709 (no actual tax unless lifetime exemption exceeded, currently $13.99M per person).
Does gift of equity count as down payment?
Yes for most loan types — FHA, conventional Fannie/Freddie, VA. Lender requires documentation: gift letter, evidence of relationship, appraisal confirming FMV, signed gift acknowledgment. Gift of equity alone can sometimes cover 100% of required down payment on a primary residence.
Who pays gift tax if it exceeds the exclusion?
The donor (seller) files Form 709 and reports against lifetime exemption. Actual tax only due when lifetime exemption exhausted ($13.99M/person in 2026). For 99% of family transactions, the gift is reported but no tax is due.
Does the buyer owe tax on a gift of equity?
No. Recipients of gifts don't owe gift tax in the US. However, if the recipient later sells, their basis is the seller's original basis (carryover), not the reduced purchase price — which can trigger a larger gain later. Plan ahead with a CPA.
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