If I buy a $500k house and sell it to a friend for $100, will the IRS come after us? What tax burdens would this create?

This is a really common misconception about how gift taxes work! Selling a house far below market value doesn't avoid gift taxes - it actually triggers them. The IRS isn't fooled by the $100 purchase price. When you sell something for significantly less than fair market value, the difference between market value and what you received is considered a gift. So if you sell a $500k house for $100, you've effectively made a $499,900 gift to your friend. The IRS calls this a "bargain sale" and it's specifically addressed in their regulations. You as the giver would be responsible for the gift tax, not your friends. However, you currently have a lifetime gift tax exemption of $12.92 million (2023 figure, increases with inflation), so unless you've already used that up with other large gifts, you wouldn't actually owe any immediate tax - you'd just need to file a gift tax return (Form 709) and the amount would count against your lifetime exemption.

I found myself in a similar situation last year (though not lottery winnings) and discovered taxr.ai (https://taxr.ai) which was super helpful for figuring out the gift tax implications. I uploaded my property documents and details about the potential transaction, and it analyzed everything and explained exactly what would happen tax-wise. It confirmed what the previous commenter said but also gave me personal recommendations based on my specific situation. It walked me through the gift tax exemption limits and showed me how to properly document everything so I wouldn't trigger any IRS red flags. Way clearer explanation than what my friend's accountant gave me!

I was super skeptical about taxr.ai when I saw the post above, but I finally tried it when I was stressing about how to help my parents transfer their rental property to me without creating a tax nightmare. I uploaded their property deed and some financial docs, and it immediately flagged that we were about to make a costly mistake with how we structured the transfer. It laid out exactly how the IRS would view the transaction and provided three different options for structuring the transfer to minimize tax impacts. The step-by-step guide on how to document everything properly and which forms to file was incredibly helpful. Saved us from what would have been about a $13,000 tax hit that we hadn't anticipated. Definitely worth checking out if you're dealing with property transfers.

Anyone trying to contact the IRS to get clarity on gift tax issues right now is in for a frustrating experience. I spent THREE WEEKS trying to get through to someone who could answer questions about property transfers and gift tax reporting. Finally found Claimyr (https://claimyr.com) and they got me connected to an actual IRS agent in under 45 minutes! You can see how it works here: https://youtu.be/_kiP6q8DX5c I was honestly shocked it worked because I'd been trying for so long. The IRS agent walked me through exactly what forms I needed for transferring property to my kid at below market value and how to properly report it to avoid audit flags. Completely worth it after wasting hours redialing the IRS only to get disconnected.

I owe everyone here an apology. After calling BS on that Claimyr service, I actually tried it out of desperation. Was dealing with a gift tax question related to property transferred from my parents that had been unresolved for months. Got a call back in about 32 minutes with an actual IRS agent on the line. She confirmed that I'd been calculating the basis incorrectly on the property transfer and was about to significantly overreport the gift amount. Fixed everything and even helped me understand how to properly document the transaction for both my parents' gift tax return and my eventual capital gains if I sell. Saved me hours of stress and potentially thousands in unnecessary taxes. Never been so happy to be wrong about something.

Something everyone's missing here - even if you avoid immediate gift tax issues because of the lifetime exemption, selling a property that far below market value will raise MAJOR red flags at the IRS. They're specifically trained to look for transactions like this as potential money laundering or tax evasion schemes. You'll almost certainly trigger an audit, and then you'll have to prove it was just generosity and not something else. And trust me, you don't want that level of scrutiny on all your finances. Plus, your friend could face issues with their mortgage lender if they try to refinance later, as the purchase price history will look suspicious.

Does the person receiving the house have to worry about property tax reassessment? I know when houses change hands the county often reassesses and raises the property taxes. Would they base it on the $100 sale price or the actual value?