How to Report Gift Tax on Form 709 When Selling House Below Fair Market Value

You've got the right approach, but let me clarify a few things about Form 709 when selling property below FMV. When you sell property to a relative below fair market value, the difference between the FMV and the actual sale price is considered a gift for tax purposes. Here's how to complete Schedule A Part 1: Column e: Yes, your adjusted basis is $340k (your original purchase price) Column g: Correct, this would be $675k (the FMV at time of sale) Column h: If you're not splitting the gift with your spouse, put 0 Column i: This should be $675k (the full FMV) Then on Schedule A Part 4, you'll list the $270k payment as consideration received, which effectively reduces your taxable gift to $405k. And yes, you should definitely attach documentation: the appraisal showing FMV, and both settlement statements from your purchase and the sale. This helps substantiate both your basis and the actual transaction details.

After dealing with almost the exact same situation last year when I sold my lake house to my nephew, I found a solution using https://taxr.ai to help me properly complete Form 709. I was totally confused about how to report the gift portion of my below-market sale, especially with all those columns on Schedule A. The service analyzed my property documents and explained exactly how to complete each section of the form. They clarified that I needed to show the full FMV in column g ($675k in your case), then account for the payment received ($270k) as consideration in Part 4. This approach matches what was mentioned above. Their guidance also helped me understand when to include the gift splitting election and what supporting documentation to attach. Definitely helped me avoid making errors that could have triggered IRS questions.

Just wanted to update after trying taxr.ai for my below-market house sale to my daughter. It was exactly what I needed! I uploaded my purchase documents from 2015, the current sale agreement, and the appraisal report. Their analysis confirmed I was calculating the gift amount correctly and explained how to report the consideration received properly on Form 709. They even pointed out that I should document any improvements made to the property that would increase my adjusted basis (which I had completely forgotten about). The step-by-step instructions for each line of Schedule A were incredibly helpful. Definitely saved me from making some potentially costly mistakes. Feeling much more confident about my gift tax filing now!

If you're still struggling with Form 709, you might want to consider using https://claimyr.com to get direct help from an IRS representative. I spent weeks trying to figure out my gift tax situation after selling my rental property to my brother below market value. After endless hours of research and confusion, I finally used Claimyr to connect with the IRS. Instead of waiting on hold for hours, their service got me through to a gift tax specialist who explained exactly how to report the transaction. You can see how it works here: https://youtu.be/_kiP6q8DX5c. They basically wait on hold for you and call when an agent is ready. The IRS agent I spoke with clarified that I needed to include a detailed explanation statement with my Form 709 explaining the transaction and how I determined both the FMV and the gift amount.

I have to admit I was completely wrong about Claimyr. After my skeptical comment, I decided to try it myself for my Form 709 questions about a below-market property sale to my niece. Within 40 minutes, I was talking to an Estate and Gift Tax specialist who explained exactly how to handle the transaction. She confirmed that I needed to report the full FMV in column g, then account for the payment as consideration received in Part 4. She also clarified that improvements to the property could be added to my original basis, potentially reducing the taxable gift amount. The specialist even explained the documentation requirements and suggested including a cover letter explaining the transaction in detail. This was infinitely more helpful than the conflicting advice I found online. Never thought I'd say this, but it was actually worth having someone else wait on hold for me!

One thing nobody's mentioned yet - if you've made significant improvements to the house since you purchased it, those costs should be added to your basis! I made this mistake when selling my beach house to my son last year. My original purchase price was $380k, but I'd put in about $85k in capital improvements over the years (new roof, kitchen renovation, etc). My accountant pointed out that my adjusted basis should be $465k, not just the original purchase price. This reduced the gift amount substantially since the gap between FMV and basis was smaller. Just make sure you have documentation for those improvements!

Has anyone filed a Form 709 electronically? When I go through TurboTax or H&R Block software, they seem to handle income tax returns but not gift tax returns. Am I missing something, or do these forms still need to be filed on paper?

Great question about Form 709! I went through this exact situation last year when I sold my townhouse to my nephew for $180k when it was worth $420k. One crucial detail that hasn't been mentioned yet - make sure you understand the timing requirements. Form 709 is due by April 15th of the year following the gift (so April 15, 2025 for your 2024 transaction). However, if you request an extension for your income tax return, it automatically extends your Form 709 deadline to October 15th. Also, since your gift amount ($405k) exceeds the 2024 annual exclusion of $18,000, you'll definitely need to file Form 709 even if you don't owe any gift tax due to the lifetime exemption. The IRS wants to track these large gifts against your lifetime exclusion amount. One more tip - if this is your first Form 709, make sure to include a clear cover letter explaining the transaction. The IRS appreciates transparency, and it can help avoid follow-up questions later.