Selling an inherited house in Canada may involve capital gain tax.
The most important aspect is to understand that there is no inheritance tax in Canada. The person who inherited the home can treat it as his home. In such a case, he has to take over the repairs, insurance, other taxes, etc.
However, if you decide on selling an inherited house in Canada, you will have to pay the capital gains tax.
Any real estate or property appreciates over the years. Deemed disposition is the term explaining this value- Fair market value-that property would be considered to have been sold at the time of the death.
When is the capital gains tax payable?
As mentioned above, there is no direct tax on an inherited property. But,
- If the inherited house was being treated as a secondary or vacation home by the deceased, it would be taxed. This capital gain tax, in this case, will be paid by the estate, and you do not have to worry about it.
- You can also choose to rent the property out and then pay income tax on that.
- You have to include the income from the sale of the inherited house and pay capital gains taxes only if you choose to sell that.
Primary and secondary residence
A person leaves his/her property to the spouse or common law partner, who can choose to live there or sell it. If it is used as the primary residence, then you will have to pay the taxes differently. However, family members usually decide to sell the house as they do not want to keep a secondary residence when they prefer to live in another house. The taxes owing to two houses and the maintenance charges may be more than a person can afford to pay.
The tax system is relatively clear on capital gains tax.
When you sell your primary residence, then there is no capital gain tax. When you sell an inherited house, it is considered income in that year and needs to be included in the calculations for income taxes. If you inherited the property, you have to pay a tax of 50% on the capital gains- the difference between the Fair market value and the price when you received it.
How long should you hold on to the property:
- You can hold on to the property, renovate and repair and rent it out.
- You can decide to live there.
- You can choose to keep it as a vacation home; then, it becomes your secondary residence.
- You can opt to sell it if you cannot keep the property for any reason.
This is a simple matter of preference and convenience. But you must know that maintaining any house means expenses and you have to pay taxes. The probate fee has to be taken care of too. The complete process is expensive, and people try to sell off the property inherited from deceased persons as quickly as possible to save on the tax in Canada.
The sale has to be reported
The surviving spouse or the family members have to file two returns to the Canada revenue agency on behalf of the deceased person. One for the period until the death of the person and one immediately afterward. The deceased’s final tax return will also show all the details of the value of the house.
Once an inherited house is sold subject to capital gain, this has to be reported in the seller’s income details. That is why it needs to be reported and incorporated into the legal system. Another critical point is that such a house can be sold only after the probate is granted.
If you want to know if the sale of an inherited house is taxable in Canada? Then the answer is simple. An inherited house per se does not have an inheritance tax in Canada. However, if it is the deceased’s secondary house or the legal heirs decide to sell it, then capital gain tax has to be paid. It is calculated based on the fair market value. Take legal advice for a smooth process of the sale of an inherited house.
You can see that an inherited house may have its inherent liabilities and taxes to be paid. Then the complex legal documentation has to be completed for the sale of the house. If you are looking for a convenient process to sell an inherited house, we can help you. We have an expert team who can guide you through the legal maze. We also pay cash immediately for such houses. It may help you pay the taxes and liabilities of the estate and move on with your life. Call us or email us. We can help you.