"My father died this past November and left everything to myself and sister, including his house/property. If we sell this property this summer, do we have to claim a capital gains? If so, on what part?"
On the transfer of the property from you to a third party, you are probably going to be liable for capital gains tax. The period that you're on the hook for is from the date you acquire it to the day you sell it. Since this period of time will be only a matter of months, the property might not incur too much of a gain in that time, and therefore your tax will be small. You and your sister can split the tax between you as you are both inheriting the property.
Note that if the property in question is your principal residence (which doesn't seem to be the case here), the tax is not payable on your sale of it, because this is an exception to the general rule of capital gains.
Now let's look at the first transfer - that of the property from your father to you. Since you describe it as "house/property" rather than just "house", I'm assuming there is something more than just a house. When these items transfer to you, there is no tax for you personally to pay. However, there certainly may be taxes that must be paid by the estate.
When your father passed away, there would have been no capital gains tax payable on his home (principal residence). Note that only 3 acres of property can be included in the principal residence exemption. If there was an additional property, such as a cottage or revenue property, there is capital gains tax payable on that property. Keep in mind that if the property sits in the name of the estate for a long time, there may also be tax payable on the increase in value while it's in the estate name.
As you can see, it seems a simple question but the answer is complicated. This is why I recommend that you sit down with an accountant to figure out the tax details.
My mother's 6 quarters of land were sold at the end of January 2010. These quarters have been in her possession since 1972. She passed away in 1996. The quarters were probably worth on the average of about $20,000 at the time of purchase which would be a total of $120,000. They were sold at a total sale of $1000072. Each of eleven family members have inherited the moneys from this sale. What capital gains would there be in this case if any?
ReplyDeleteThere should be no capital gains tax assessed against your Mom's principal residence. Keep in mind that the principal residence exemption doesn't cover an entire quarter, but only a small number of acres. So there will be capital gains tax on the remainder of the "home" quarter, as well as on all of the other quarters. To get a ballpark of how much the tax would be, subtract the ACB ($120,000) from the sale value ($1,000,072). The difference between them is the capital gain. Half of the gain is taxable. The tax should be paid by your Mom's estate before any moneys are paid out to the 11 beneficiaries. I'd use an accountant for this, given the large amount of money and the number of people involved.
DeleteLynne
My principal residence was in Canada and now it is in the USA. My Canadian home is up for sale. When this home sells, wlll I have to pay a capital gains tax since my principal residence is in the USA? We return to CAnada every summer to clean up the home and then return to the states.
ReplyDeleteMy question is related to capital gains versus probate fees. My mom's house has increased in value by $250,000 since it was purchased in the forties. Upon her passing, hopefully not for awhile yet, the house will be passed on to my sister, brother and myself. Is it better financial planning to go through probate or transfer the home to the children before her death ? We live in Nova Scotia and all of us presently own our own home. Capital gains would apply, if we go that route, but at what date...initial purchase price or date of sale of the house.
ReplyDeleteThanks, Barry
There's a lot more involved in financial planning than just what to do with the house, but since I don't know about any of the rest of it in this case, let's just talk about the house.
DeleteWhen your Mom disposes of the house, there will be no capital gains tax owing, assuming that it's her principal residence. Doesn't matter who receives the house (in terms of tax) because the transaction that's being taxed is the house leaving her possession.
I am not in favour of putting a person's home into the name of the children while that person is still alive. Any one of you three kids could get divorced, or get sued, or a dozen other things that could cause a loss for everyone involved. The risk to your Mom is too great, in my view. Also, why create a tax situation for the rest of you if you don't have to?
Also, please re-think the concept of passing the house from your Mom to all three of you. Is there any reason why the house shouldn't be sold and the proceeds divided? Having that many siblings on a title pretty much never works out well.
Lynne
Many thanks for your quick response. You have helped clear up some concerns we had and now we are better equipped to move forward, choosing probate over capital gains.
DeleteHi Lynne
ReplyDeleteMy dad just passed away in February, my mother is still alive and so everything obviously reverted to her. I am her soul child and on her death everything will pass to me. She owns her own house as do I. I have two children both young adults. One of my children has special needs but with support he will manage to live on his own which is both his and my preference. Our crazy plan is that we will move into my mothers house. Eventually make it into two appartments so that my chid with special need has somwhere to live. I will live in the other appartment. My other son will either rent my current house to live in or I will have to sell it to finance the renovation on my mothers house. I have a hensons trust set up for my son with special needs. I do need to make sure I have as much money as possible. So here is my question. How can I keep as much money as possible for the plans we have?
Hy Lynne, I am an only child and therefore my mom and I put the house on her name as well as my own. I know I will have to pay capital gains when she passes and I sell the house. My question is say her health declines to the point where she will have to sell and move into nursing home. Will I still have to pay capital gains on my half?
ReplyDeleteGood Day Lynne
ReplyDeleteYou have probably have answered this before. My mother lives in a large house and her will reads that all proeeds to be divided equally amongst the four children still living.The question keeps coming up about capital gains on the sale of the house after her passing. i feel the will is quite explicit division amonst the four no capital gains after the sale of the house
It sounds as if you mean that the will says there is to be no capital gains tax. If so, you should know that the will has no say in whether there is going to be capital gains tax assessed. Having said that, there should be no tax when the house transfers to the kids, or if it's sold quickly by the estate and the funds split between the kids. For your own sakes I sincerely hope your mother isn't going to transfer the actual house to the four of you, as that is disastrous 99% of the time for reasons mostly unrelated to tax. Now if the house is transferred to the four of you and later you four decide to sell it, there WILL be capital gains tax on the sale (if it increases in value), no matter what it says in the will.
DeleteLynne
My husband is an only child. His 95 year old mom is in a care home. Her will states everything is left to my husba nd. He wants to sell her home and seem to have problems. He is PO to banking but not for home. His lawyer says he has to file for guardianship and now he says that her assets are more than his. So now I have to make up the shortfall.. lawyer has added her house as part of her assets and the house is not yet sold. How? This has gone on since Feb. Meanwhile this house is sitting there costing money. Taxes, water , power and someone to cut grass.. we are so stressed. There is always something else that pops up. Are we getting the runaround with this lawyer? By the time this over there will be nothing for my husband.
ReplyDeleteThe lawyer is right that your husband can't sell his mother's house. She is alive, so the will is of no use. you've said there is only a power of attorney for banking that doesn't extend to the house. That sounds normal too. I assume that his mother doesn't have capacity to make a new power of attorney to cover property, otherwise that would have been done. If that's so, then the next step is to ask the court to appoint your husband as trustee. I'm not going to quibble over the fact that you said "guardian" instead of "trustee" because these roles are called different things in different places.
DeleteAll of that made sense to me, but the next part about you making up the shortfall makes no sense at all. I have no idea what you mean by this. So what if the mother's assets are more than your husband's assets? And shortfall for what? Why are your personal assets and those of your husband involved in this at all?
Yes it makes sense that your mother's house would be included in a list of her assets. Doesn't matter whether it's real estate or cash, it's still an asset.
You are not paying for the taxes and water etc yourself, I hope. The asset belongs to your mother-in-law so she should be paying for those. Your husband has the bank POA so that shouldn't be a problem.
Applying for guardianship or trusteeship can be a complicated court procedure, but not so complicated that it takes 7 months. Either there is something else involved that you haven't mentioned, or someone is dragging his heels.
I know you're concerned about the assets being depleted but keep in mind that when the house is sold, your husband doesn't get the money. It belongs to his mother until she dies, and if the money is used up, for paying for her care, for example, then he could well end up with nothing.
Lynne
Hi Lynne,
ReplyDeleteMy husbands father passed away last December, and there are 3 siblings. The house was sold to one sister, no issues. There is a parcel of land that was purchased by my father in law probably about 40 years ago. We had it appraised around $64,000. We are looking to sell it. Are we going to have to pay capital gains, and on what portion. The value has not changed sinse last Dec. We don't know what he paid for it originally, but probably not very much.
Hi Lori,
DeleteFrom what you've said, yes I would expect that there will be capital gains tax to be paid. This is because a) the land is not your father-in-law's principal residence, and b) he didn't pay much for it and it's now worth $64K. I'm not sure what you mean by "we" are going to sell it and "we" might pay taxes, unless you and your husband are executors of the estate. Assuming that's the case, you (i.e. the estate) pays tax on one-half of the increase in value, calculated from the day your FIL bought it to the day it's sold.
Lynne
My father passed away in 2008 and left a cottage to my sister and I. We paid the capital gains on his 2008 income tax return at a property value of 250K-original cost. We sold the property in July 2012 at 230K. How do we apply the capital loss (250-230=20K)? Will it be against the 2008 income taxes for my father, or mine and my sister's income tax for this year?
ReplyDeleteI immigrated to Canada in 2002. I owned a house before immigrating. I sold the house in 2011 and had the money transferred to Canada in 2012. how does capital gains apply.
ReplyDeleteIf I were you, I'd ask an accountant.
DeleteLynne
If you inherited a property, and you’re planning to sell it, one of the best things to do is to sell it as soon as possible to avoid a higher capital gain tax. You won’t be exempted from capital gain tax because the property increases in value since the date of death of the person from whom you inherited the property. Inheriting a property from your parents can be quite complicated, so it is better if you have a legal advisor to help you with this matter.
ReplyDeleteI wholeheartedly agree Audrey. It breaks my heart to see how many people get into legal, financial or family trouble just because they didn't sit down with someone with expertise in these matters.
DeleteLynne
What are the tax consequences if a US citizen or an Indian (India) citizen who owns significant stocks in a privately held Canadian mining company dies and wills the assests to his brother who is in US or in India.
ReplyDeleteIn June 2011, my father added my brother and me on title of his property, my brother lived in the house, my father was in a home and I living somewhere else, my father passed away December 2011. My brother moved out in may. We sold the house nov 2012 . Do we have to pay capital gains?
ReplyDeletehi
ReplyDeletemy parents immigrated from Canada a couple of years back. they have sold their farm back in home country (India) and paid taxes on sale as applicable there. This sale happened right before they came to Canada on immigration. the money has been invested in a term deposit in the home country since.
Do they need to declare in particular while transferring the money to Canada? Or do they only need to declare the interest earned on the term deposit.
You need an accountant to help you with this. Sorry I can't be of assistance.
DeleteLynne
Lynne,
ReplyDeleteFantastic web site. I have really learned a lot. Didn't find the answer I needed though.
My FIL died in 1982. House in his name. My MIL never formally transferred ownership. So house is still in the name of my FIL's estate.
Now my MIL is nearing the end, and she has a Will, but what will happen to the house?
My FIL had 2 sons before marrying MIL and they had 2 daughters together.
I don't think my FIL had a will. MIL just kept living in the house.
Trying to help my wife with the huge headache of sorting out the house when her mom passes.
Sisters don't feel comfortable talking about the issue with their mom.
Thanks so much!!
From what you've told me, it seems likely that your father-in-law's house is not in the name of his estate, but in his name. This may seem like splitting hairs but it's vitally important. If it's in the name of his estate, his executor can transfer the house according to his will, or his administrator can distribute it according to law.
DeleteHowever, you've said that you're not sure whether he had a will, so it seems unlikely that he had an executor or that anyone did anything about his estate. That's why I suspect it's in his name, not his estate's name.
If your father-in-law had a will and you could find it, you would have to probate it to transfer his home. Assuming that there is no will, someone would have to apply to the court to become his administrator and thereby gain legal authority to do something with the house.
Right now, the person with the first priority to apply for administration is his wife, but it sounds as if she is in no shape to deal with that. So the right to apply to be administrator is going to pass to his children - all of them. They'll have to figure out who is going to do that. Once that's done, the house will be dealt with according to intestacy law in your father-in-law's province.
For heaven's sake don't let anyone put the title to the house in the names of all four children, unless they want the fighting to start immediately and carry on indefinitely.
Yes, it's going to be a headache to sort out, but it won't be impossible.
Lynne
I am estate executor for a frend, John, who owned a house that was his principal residence for many years. Five years before his death, he stored most of his furniture and household effects in the basement and garage, rented the house to tenants, and relocated to a town 70 km away for work. Under these circumstances, he could have retained principal residency until his death had he not been advised by an accountant to claim CCA against his rental income. (The accountant was unaware that John was terminally ill; John was ignorant of the tax implications of claiming CCA.) As a result, John's estate is on the hook for significant capital gains tax. As an executor, can I designate the house as his principal residence and amend his past tax returns to revoke the CCA claims that were made in error?
ReplyDeleteThis is something you'd have to run by an accountant.
DeleteLynne
I am confused. My grandmother had a 10 acre farm which was where my father lived and raised his children including myself and my siblings. Upon my grandmothers passing, she left the farm for my father to live on and heldit in trust for her 3 remaining grandchildren including me.When he passed there was just the land title transfer of the property to surviving grandchildren and there is no need to probate. The farm is the primary residence for my sister and has been for my father and grandmother. As you expect there is some family conflict with my sister living there and myself and my handicapped sister. She wants to live there as long as she can and we could use the money for ourselves. She had an offer for 3 million but turned it down. My question is regarding capital gains tax. If for some miracle she decides to sell how would the capital gains effect us. When the farm was purchased by my Grandmother she paid 20,000 and at the time of her passing the fair market value was 240,000. When my father passed it was 3,000,000. It has stayed at about that value since my father passed in Nov 2011. The property is still in his name at the land title office held in trust for us grandchildren. My head is spinning, what do you think?
ReplyDeleteHello,
ReplyDeleteI am wondering about my own situation.. my parents put my name on our cottage's deed many years ago (20 or so). It's not a principal residence as she has her own home. My father has since passed, and now both my mother's and my name are on the deed. I know at some point my mother will pass, but I don't want to sell this property.. I want to keep it indefinitely. Would I have to pay capital gains tax when she dies, or because I already owned the property would it not be applicable? (ie, it won't go to the estate as I will already own it... we have full simultaneous joint ownership currently, as opposed to 50/50)
Thanks for your help!
Hi Lynne,
ReplyDeleteI am an only child and will be inheriting a rental property (at some point) that my parents own.
My parents primary residence is currently in a retirement home. I understand I have to pay tax on the capital gain if I inherit the rental property but if we put my name on the deed while they are both alive, does that alleviate the tax?
Even though your parents reside in a retirement home, they can still own a primary residence. This is assuming that they pay for cost of care, as opposed to owning a unit in the retirement home. If they own the house that you call the rental property, and they don't own any other, they can designate that property as their primary residence.
DeleteLynne
Hi Lynne,
ReplyDeleteMy wife passed away last September. She had owned an apartment for our personal use since 2003. When she came down with cancer a year before death, the apartment was legally made into joint 50/50 ownership as were all of her bank accounts. Q1:Do I have to report a deemed disposition and capital gain on her 2012 final return? Q2: Do I have to report the same for my Return? Q3; If so is the capital gain for my wife based on 100% appreciation from the Cost Base at time of acquisition to when it was made joint plus further appreciation on 50% ownership to the time of death? Q4: In my case will capital gain be considered from when it became joint until a) the time of death or b) the end of 2012. OR- Hopefully I will just have to declare the deemed disposition and not incur any tax as the spouse and only beneficiary.
Thank you for your help.
Lynne,
ReplyDeleteSeveral years back my grandma passed away. Her trust was in her sons name. He inherited all the farm land. He gifted my mom 40 acres of it. It was put in her name and listed agricultral land. When my dad had a stroke, they sold there residential house with 2 acres, and the additional land plot of 40 acres. The land was connected property. The last two years they have had to pay a large amount in capital gain. Im just wondering
If the tax accountant was correct in there filing? If anything was overlooked. Thank you for your time.
Lynne,
ReplyDeleteMy dad has been added to the title of my grandpa's principal residence. When my grandpa passes away, what tax will my dad have to pay? Just capital gains tax on any appreciation in value between the time of death to time of sale? He has power of attorney and living will privileges established as well(my dad). Also, any assets will be split between my dad and his brother 50/50. I was unsure whether the lump sum my dad receives upon sale of my grandpa's house would be treated as income within a given year. Thanks!
I really think this is something that you should go over with an accountant.
DeleteLynne
Lynne,
ReplyDeleteI inherited my parents' house three years ago. It has taken that long to sort through the contents and prepare the house for sale. The house was evaluated at the time I inherited it, so I have a baseline value. My question is, are improvements (specifically, redoing the roof, painting and plastering, replacing the kitchen floor) deductible expenses that could reduce capital gains? No one has occupied the house since I've owned it.
Thank you.
Yes, improvements can be used to raise the adjusted cost base of a property and thereby reduce capital gains tax. Check with an accountant to make sure you get all the deductions!
DeleteLynne
Hi, My wife and her sister inherited their father's primary residence a couple years ago. They've been allowing their mother, who was not married to their father at the time of his death, to live in the house. The house was assessed at $375,000 following the death. They are now planning to sell the house and expect to get around $550,000. Is the capital gain then the difference between 550,000 and 375,000 divided by 2? How much of that capital gain is taxable. Thank you.
ReplyDelete