Family transfers
Gift of equity and selling a home to a family member in Washington.
A gift of equity lets an owner sell to a child, sibling or parent below market value and count the discount as the buyer's down payment. It is a legitimate, lender-approved structure — but only when the appraisal, the gift letter and the excise tax affidavit all tell the same story. This hub walks through the Washington version of that paperwork.
Quick answer
A gift of equity is the difference between a home's appraised value and the price a relative actually pays. The lender treats that difference as the buyer's down payment, so the buyer can often close with little or no cash. The seller signs a gift of equity letter, the sale is still recorded at the agreed price, and Washington real estate excise tax is calculated on the consideration actually paid or the value transferred.
0–20%
Typical gift of equity as a share of appraised value
1 letter
Signed gift of equity letter required by most lenders
$19,000
2026 federal annual gift tax exclusion, per giver per recipient
Questions this hub answers
- how does a gift of equity work
- gift of equity letter requirements
- gift of equity tax implications
- selling a house to a family member
- non-arm's-length transaction appraisal rules
The five steps of a family transfer
- 01
Get an independent appraisal
Because a family sale is a non-arm's-length transaction, the lender orders a full appraisal and underwrites against appraised value, not the family price. Start here — every other number depends on it.
- 02
Set the price and the gift amount
Appraised value minus the agreed sale price equals the gift of equity. Confirm with the loan officer how much of it may count toward the down payment for the loan program in question.
- 03
Sign the gift of equity letter
The letter names the parties, the relationship, the property, the gift amount, and states that no repayment is expected. Lenders will not fund without it.
- 04
Handle tax reporting
Washington has no state income tax, but a gift above the federal annual exclusion requires the giver to file IRS Form 709. That usually reduces the lifetime exemption rather than creating tax due. Confirm with your CPA.
- 05
Close through escrow with a full title search
Family sales still need escrow, a title search and a real estate excise tax affidavit. Skipping escrow is how liens, unrecorded easements and old loans reappear years later.
Three ways to move a home to a relative
| Structure | How it works | Watch out for |
|---|---|---|
| Gift of equity sale | Relative buys with a mortgage; the discount becomes the down payment. | Requires appraisal, gift letter and a lender that allows it. |
| Outright gift / quitclaim | Title is transferred without payment. | Carryover cost basis, Form 709 filing, and any existing mortgage may be called due. |
| Sale at market value | Standard arm's-length sale to a relative. | Cleanest for taxes; the buyer needs a real down payment. |
Checklist
Documents to gather before you list the transfer
- Current mortgage payoff statement and loan number
- Most recent King or Snohomish County property tax statement
- Signed gift of equity letter naming the relationship and amount
- Appraisal ordered by the buyer's lender
- Washington real estate excise tax affidavit prepared by escrow
- Any trust, probate or divorce decree affecting title
Gift of equity questions we get every week
How does a gift of equity work in a Washington home sale?
The home is appraised, the family agrees on a lower sale price, and the difference is documented as a gift of equity in a signed letter. The lender applies that difference as the buyer's down payment, so the buyer may need little or no cash at closing. The deed and excise tax affidavit still record the actual transaction.
What has to be in a gift of equity letter?
Names of the giver and recipient, their relationship, the property address, the dollar amount of the gift, a statement that no repayment is expected, and signatures. Lenders typically supply their own template — use theirs rather than a generic one.
What are the tax implications of a gift of equity?
In 2026 a giver may transfer up to $19,000 per recipient without filing. Above that, the giver files IRS Form 709 and the amount reduces their lifetime exemption; tax is rarely owed. The buyer inherits no special basis issue because it is a sale, but the seller may still owe capital gains tax on the sale portion. Confirm details with a CPA.
Do we still pay Washington real estate excise tax on a family sale?
Yes in most cases. Washington's graduated excise tax applies to the consideration paid; certain gifts with no consideration and no debt relief can qualify for an exemption, but escrow must document it on the affidavit at recording.
Can a gift of equity be used on an investment property?
It is far more restricted. Most programs allow gifts of equity only for a primary residence, sometimes a second home. For a rental transfer, plan on a conventional sale or a gift with separate financing.
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Planning a transfer between family members?
Send us the property address and the relationship. We will map the appraisal, gift letter, excise tax and escrow steps in one call — in English or Mandarin.
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