3 Important Things You Need To Know If You Are Selling An Inherited Home
When parents or grandparents die, they usually leave their home or cottage to their children or grandchildren. While there is no inheritance tax in Canada, it is important to know certain tax rules may or may not apply if you decide to sell the property.
Here are situations that may arise once you have inherited a property:
Inheriting a principal residence
If you have inherited your parent’s home and it was their principal residence, the estate would not be subjected to a capital gains tax, and you would inherit the home without paying taxes, subject to the following:
1) Inheriting a principal residence when you do not own a home
If you do not own a home, and you decide to move in, then this home becomes your principal residence. When you decide to sell it, you will not be subject to any tax on the gain as the home is your principal residence.
2) Inheriting a principal residence when you do own a home
There are situations where you may already own a home which is your principal residence and do not want to move into your parent’s home. You decide to sell it. The sale will be subject to tax. It will be calculated on the difference between the fair market value at the time you inherited it and the sale price. Any positive difference is taxed.
If you are not planning to keep the home and if the real estate market is buoyant, it would be advisable to sell the home as soon as possible in order to save on the taxes.
On the other hand, you could keep the home and earn rental income and pay taxes on that.
3) Inheriting a cottage or vacation home
If your parent’s property is not designated as a principal residence, i.e. it is a cottage or vacation home, then the transfer of ownership to you would be subject to tax. The taxes are owed by your parent’s estate. It is calculated by subtracting the difference from the purchase price and as if the property had been sold at fair market value on the date of the inheritance.
If the estate does not have enough cash, then you would have to take a loan or be forced to sell the property to pay the taxes.
Again, if you chose not to sell, you could either keep it for yourself and use as a vacation property or rent it out and pay tax on the income you earn.
While we have covered just the basics on this complicated topic, you can contact us if you have more specific inquiries, and we can put you in touch with the right people to answer them.