1. What is Gift of Equity?

A gift of equity occurs when a property owner sells their home to a family member or friend below the fair market value. The difference between the market value and sale price is considered a gift that can be used as the buyer's down payment or to reduce the loan amount.

2. How Does the Calculator Work?

The calculator uses these simple formulas:

Where:

• \( FMV \) — Fair Market Value of the property (USD)
• \( Sale\ Price \) — Actual sale price of the property (USD)
• \( Equity\ Gift \) — The amount of equity being gifted (USD)
• \( Loan\ Reduction \) — Amount the loan is reduced by (USD)

3. Importance of Equity Gift Calculation

Details: Calculating the equity gift is important for tax purposes, mortgage qualification, and proper documentation of the transaction. Lenders often require this calculation when the sale is between family members.

4. Using the Calculator

Tips: Enter the property's fair market value and the actual sale price. Both values must be positive numbers, with the sale price typically lower than the FMV for an equity gift to exist.

5. Frequently Asked Questions (FAQ)

Q1: Is a gift of equity taxable?
A: The recipient may need to pay taxes on the gift if it exceeds annual gift tax exclusion limits. Consult a tax professional for specific advice.

Q2: Can a gift of equity be used as a down payment?
A: Yes, many lenders allow the equity gift to count as all or part of the down payment requirement.

Q3: How is FMV determined?
A: Typically through a professional appraisal, but some lenders may accept recent comparable sales or tax assessments.

Q4: Are there limits to how much equity can be gifted?
A: Lenders may have limits, and large gifts may trigger gift tax reporting requirements.

Q5: Does this work for investment properties?
A: Most lenders only allow gifts of equity for primary residences, not investment properties.