Gift of Equity Calculator — Family Property Sale Below Market Value
When a family member sells you a home below its appraised value, the price difference is a "gift of equity." This calculator shows how large that gift is, how it functions as a down payment, the resulting loan-to-value ratio, and the estimated monthly mortgage payment.
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years
Fair market value minus sale price — the equity gifted by the seller
$400,000
Market valueGift of equity
15%
Loan amount
85%
- 1
Fair market value
400,000 - 2
Gift of equity
400,000 − 340,000 = 60,000The discount below market value counts as the buyer's down payment toward the purchase.
How does this calculator work?
Gift of equity = fair market value − sale price. It counts as a down payment, reducing the loan amount and LTV. A $400,000 home sold at $340,000 creates a $60,000 gift (15% down), leaving an $340,000 maximum loan. IRS annual gift exclusion is $18,000 in 2025; excess reduces the lifetime exemption. Always get an appraisal and consult a tax advisor.
Formula
How this is calculated
A gift of equity occurs when a property owner sells real estate to a family member (or close associate) at a price below the independently appraised fair market value. The difference — the "gift" — does not change hands as cash; instead it is credited toward the buyer's down payment at closing. Lenders treat it as equity in the property, which directly reduces the required loan amount.
For example, if a home is appraised at $400,000 and the seller accepts $340,000, the gift of equity is $60,000 — effectively a 15% down payment that the buyer receives without needing to save the cash. If the buyer also brings $10,000 in cash, the total down payment is $70,000 (17.5%), the loan amount is $330,000 and the LTV is 82.5%. Staying below 80% LTV avoids private mortgage insurance (PMI), which is a common goal in gift-of-equity transactions.
The IRS treats a gift of equity as a taxable gift to the extent it exceeds the annual gift tax exclusion ($18,000 per individual in 2025 under the current Tax Cuts and Jobs Act rules). Amounts above the exclusion reduce the donor's lifetime exemption (~$13.61 million in 2025) but rarely result in immediate tax. Both parties typically sign a gift-of-equity letter for the lender, and an appraisal is required to substantiate the market value. Consult a tax advisor and real estate attorney before completing the transaction — rules vary by lender and state.
Frequently asked questions
Yes. Both FHA and conventional (Fannie Mae/Freddie Mac) guidelines allow gifts of equity from family members as part or all of the down payment, provided the market value is established by an independent appraisal and both parties sign a gift letter. The seller must not be recouping the gift through an above-market sale price.
It may be. The IRS considers a gift of equity a taxable gift. In 2025 the annual exclusion is $18,000 per donor per recipient — amounts above this reduce the donor's lifetime exemption. Most gifts of equity do not trigger an immediate tax bill, but a gift tax return (Form 709) may need to be filed. Consult a tax professional.
The seller pays capital gains tax on the actual sale price, not the fair market value. If the home was the seller's primary residence for at least 2 of the last 5 years, up to $250,000 ($500,000 for married couples) of gain may be excluded under the Section 121 exclusion. The reduced sale price lowers (or eliminates) any taxable gain on the seller's side.
Also known as
TG we-Calculate Editorial Team. (2026). Gift of Equity Calculator — Family Property Sale Below Market Value [Online calculator]. TG we-Calculate. https://we-calculate.com/calculator/gift-of-equity-calculator
TG we-Calculate Editorial Team. "Gift of Equity Calculator — Family Property Sale Below Market Value." TG we-Calculate. 2026. https://we-calculate.com/calculator/gift-of-equity-calculator.
TG we-Calculate Editorial Team, "Gift of Equity Calculator — Family Property Sale Below Market Value," TG we-Calculate, 2026. [Online]. Available: https://we-calculate.com/calculator/gift-of-equity-calculator
@misc{wecalculate_gift_of_equity_calculator, title = {Gift of Equity Calculator — Family Property Sale Below Market Value}, author = {{TG we-Calculate Editorial Team}}, howpublished = {\url{https://we-calculate.com/calculator/gift-of-equity-calculator}}, year = {2026}, note = {TG we-Calculate} }
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