Please enter valid positive numbers. Sale price cannot exceed market value.
Total Gift of Equity$0.00
Equity Percentage0%
Loan-to-Value (LTV)0%
Required Loan Amount$0.00
Tax Note: Since the gift amount exceeds the typical annual gift tax exclusion (approx. $18,000 as of 2024), the seller may need to file IRS Form 709. Usually, no tax is immediately due unless the lifetime exemption is exceeded.
function calculateEquityGift() {
var marketValueInput = document.getElementById('marketValue');
var salePriceInput = document.getElementById('salePrice');
var errorMsg = document.getElementById('errorMsg');
var resultsArea = document.getElementById('resultsArea');
var taxWarning = document.getElementById('taxWarning');
var marketValue = parseFloat(marketValueInput.value);
var salePrice = parseFloat(salePriceInput.value);
// Validation
if (isNaN(marketValue) || isNaN(salePrice) || marketValue <= 0 || salePrice marketValue) {
errorMsg.style.display = 'block';
errorMsg.innerText = "Sale Price cannot be higher than Market Value for a Gift of Equity.";
resultsArea.style.display = 'none';
return;
}
errorMsg.style.display = 'none';
resultsArea.style.display = 'block';
// Calculations
var giftAmount = marketValue – salePrice;
var loanAmount = salePrice; // Assuming they borrow the full sale price
// Avoid division by zero
var ltv = 0;
var equityPercent = 0;
if (marketValue > 0) {
ltv = (loanAmount / marketValue) * 100;
equityPercent = (giftAmount / marketValue) * 100;
}
// Formatting
var formatter = new Intl.NumberFormat('en-US', {
style: 'currency',
currency: 'USD',
minimumFractionDigits: 0,
maximumFractionDigits: 0,
});
document.getElementById('resGiftAmount').innerText = formatter.format(giftAmount);
document.getElementById('resLoanAmount').innerText = formatter.format(loanAmount);
document.getElementById('resLTV').innerText = ltv.toFixed(2) + '%';
document.getElementById('resEquityPercent').innerText = equityPercent.toFixed(2) + '%';
// Check for tax warning trigger (Using $18,000 as a baseline threshold for 2024/2025)
if (giftAmount > 18000) {
taxWarning.style.display = 'block';
} else {
taxWarning.style.display = 'none';
}
}
What is a Gift of Equity?
A gift of equity involves the sale of a residence to a family member (or someone with a close relationship defined by lender guidelines) at a price below the current market value. The difference between the actual sales price and the appraised market value represents the "gift."
Instead of a physical cash down payment, the seller "gifts" a portion of their equity in the home to the buyer. Lenders allow this equity to be used toward the down payment requirements, which often allows the buyer to purchase the home with zero or very little money out of pocket.
How to Use This Calculator
This calculator helps determine the financial breakdown of a real estate transaction involving a gift of equity. To get accurate results:
Enter Appraised Market Value: Input the fair market value of the property. This is typically determined by a professional appraisal required by the lender.
Enter Sale Price: Input the price at which the family member is buying the home. This must be lower than the market value to create equity.
The calculator will instantly compute the total gift amount, the Loan-to-Value (LTV) ratio, and the percentage of equity being gifted.
Understanding the Results
Total Gift of Equity: This is the dollar amount of equity the seller is giving to the buyer. (Market Value minus Sale Price).
Equity Percentage: This represents how much of the home's value is covered by the gift. Lenders typically look for at least 20% equity to avoid Private Mortgage Insurance (PMI), though FHA loans may allow for lower percentages.
Loan-to-Value (LTV): This ratio compares the loan amount (sale price) to the appraised value. A lower LTV is generally more favorable for loan approval and interest rates.
Tax Implications and IRS Guidelines
While a gift of equity is a powerful tool for homeownership, it does have tax considerations. The IRS classifies the difference between the fair market value and the sale price as a gift.
Important: If the gift amount exceeds the annual gift tax exclusion limit (e.g., $18,000 for 2024), the seller must file IRS Form 709 (United States Gift (and Generation-Skipping Transfer) Tax Return). However, owing actual taxes is rare unless the seller has exceeded their lifetime gift tax exemption cap, which is in the millions of dollars.
Always consult with a tax professional or CPA when structuring a gift of equity to ensure compliance with current tax laws.
Advantages for Buyers and Sellers
For Buyers: The primary benefit is the potential to buy a home with little to no down payment. The gift covers the equity requirement, and in some cases, can even be applied to closing costs.
For Sellers: Parents or relatives can help family members build wealth through real estate without needing to provide cash. It also avoids real estate agent commissions if the transaction is handled privately between parties, saving typically 5-6% of the sale price.