Inheriting a House; will you owe taxes?
In Canada, we do not have an inheritance tax, however, there are things that you need to be aware of because there may still be taxes owing after an individual has passed away.
So what happens to someones estate after they pass away?
One major item that must be taken care of is that their legal representative must prepare a final tax return which is known as a “deceased tax return”. This tax return, like all tax returns, is reviewed by the CRA and the estate of the deceased pays any taxes owing.
So how could someone who is deceased owe taxes? In Canada, we are fortunate to not have to pay capital gains on our principal residences, however, if the deceased held multiple properties, capital gains will be a possibility and those gains are taxable.
So how do you know if the estate will have to pay capital gains?
If the deceased’s property wasn’t their primary residence, and has increased in value since purchase, then Capital Gains will be experienced, and the estate will have to pay taxes on those gains.
What if you already own a home and inherit a secondary property?
It depends on if you plan to keep the home or not. If you don’t intend to keep the inherited property, then you can sell and the fee you will pay is nominal because you only owned it momentarily and taxes are calculated by subtracting the Fair Market Value (FMV) of a home by its sale price, less any expenses.
So although inheriting a house can be a good thing, it can also cost some money in taxes, so it is definitely something you need the proper legal and financial advice to handle properly to make sure you taking the most affordable avenue for yourself.
For all your mortgage needs, feel free to contact me any time.