Gift of Equity Calculator
Table of contents
What is gift of equity? Gift of equity definitionHow to calculate gift of equity?FAQsWith this gift of equity calculator, we aim to help you calculate the difference between the market value and the sale price of the property when you sell it to family members or relatives. The difference is the "gift" for the buyer since they are your family. To understand more about house buying, please check out our rental property calculator and rent or buy calculator.
We have written this article to help you understand the gift of equity definition and how to calculate gift of equity. We will also demonstrate some examples using the gift of equity formula to help you understand the calculation.
What is gift of equity? Gift of equity definition
The gift of equity is the difference between the market value of the property and the reduced sales price of the property from the seller, which tends to be the buyer's family members or relatives. To understand more about this topic, check out our FFO calculator.
How to calculate gift of equity?
To understand the calculation of the gift of equity, let's take Cindy as an example:
- Name: Cindy
- Market value of the property: $600,000
- Sales price of the property: $550,000
You can calculate your gift of equity in three steps:
-
Determine your property’s sales price.
The first step is to determine the sales price of the property. This sales price is typically lower than the market value of the property as it is sold to you by either your family members or relatives.
In this example, the
sales priceof the property is$550,000. -
Calculate the property’s market value.
Next, you will need to calculate the market value of the property. This is how much the property is worth if it is on sale in the market.
The property that Cindy is buying has a market value of
$600,000. -
Calculate the gift of equity.
Now, you can calculate the gift of equity using the formula below:
gift of equity = market value - sales priceHence, the
gift of equityfor Cindy's purchase is$600,000 - $550,000 = $50,000.
What is the gift of equity if both the market value and sales price is $1,000,000?
The gift of equity is $0. You can calculate this using the gift of equity formula here:
gift of equity = market value - sales price.
Can the gift of equity be negative?
Yes, the gift of equity can be negative. However, it is highly unlikely that it will happen as a negative gift of equity means you are selling the property at a price higher than the market price to your family members or relatives.
How do I calculate my gift of equity?
You can calculate your gift of equity in three steps:
-
Determine your property’s sales price.
-
Calculate the property’s market value.
-
Apply the gift of equity formula:
gift of equity = market value - sales price
What is the difference between the sale price and the market value of a property?
The market value is the amount of money you can get by selling the property in the market now, whereas the sale price is the price of the property when it is actually sold.