How Inheriting A House Works In Canada & If You Want To Sell It
Have you inherited real estate in Canada and are wondering what to do? It can be confusing especially if you are not the only one who has inherited the property and/or live in a different city. In this article, we will break down the fees involved and how to manage the inherited property if there is more than one owner.
What Is An Inherited Property?
Inherited property is passed down to you from a family member (parent or relative). In most cases, you receive an inherited property when a family member has passed away, which can make the situation even more stressful and confusing.
If you have inherited a house, it will be called a primary residence, meaning you are considered to live there full-time. You do not have to pay to have the residence transferred to your name. If you have inherited a cottage/vacation home, it will be considered a secondary residence, meaning you do not live there full-time and only live there a few months of the year/seasonally. You may have to pay for ownership transfers with a secondary residence.
What Type of Lawyer do You Need?
While you are not required to hire a lawyer to probate an estate, it is often advisable.
As well, to determine which lawyer would be best for your situation will depend on the situation. If you are looking to challenge a will, then it is recommended that you contact an estate lawyer for legal advice. If you need assistance regarding the sale of the property, it is recommended that you connect with a real estate lawyer. Many law firms specialize in more than one type of law and can recommend the correct lawyer for your unique needs.
What Are The Taxes Involved After Inheriting Real Estate?
In Canada, there are no inheritance taxes, meaning you do not have to pay to take over a property. If you do decide to move in, however, you will take over the property taxes, repairs, mortgage payments (if applicable), insurance payments, etc. If you decide to sell, you will be subjected to the capital gains tax.
Capital gains tax is considered taxable income in Canada and is what you pay on the profit of the sale. You will be taxed on the fair market value at the time you inherited the home/vacation home, until the time you decide to sell. You will be taxed on 50% of the capital gain.
Example:
If a cottage was purchased for $200,000 and is now worth $500,000, the capital gain is $300,000 and you would owe taxes on $150,000.
If you have decided to keep and move into the inherited property, as mentioned above, you are going to be in charge of everything that comes with the house. Having a home inspector come will give you an idea of what needs to be updated, especially if it is an older home and there are safety concerns. If you have considered the house your primary residence for the past 2-5 years, you may not be subject to capital gain taxes.
If you decide to rent out the inherited property, you will owe capital gains taxes because you are changing the type of property from your primary residence to an investment property. You will owe on the difference of the inherited value and the fair market value when you started to rent it out. It will provide a regular source of monthly income, but remember you are also going to be taking on the new role as a landlord.
ABOUT US: Fivewalls empowers home buyers and sellers to find the best real estate agent for their families. We've done all the work for you by creating one secure site to meet and contact top real estate professionals from leading brokerages.
If a cottage was purchased for $200,000 and is now worth $500,000, the capital gain is $300,000 and you would owe taxes on $150,000.
If you have decided to keep and move into the inherited property, as mentioned above, you are going to be in charge of everything that comes with the house. Having a home inspector come will give you an idea of what needs to be updated, especially if it is an older home and there are safety concerns. If you have considered the house your primary residence for the past 2-5 years, you may not be subject to capital gain taxes.
If you decide to rent out the inherited property, you will owe capital gains taxes because you are changing the type of property from your primary residence to an investment property. You will owe on the difference of the inherited value and the fair market value when you started to rent it out. It will provide a regular source of monthly income, but remember you are also going to be taking on the new role as a landlord.
ABOUT US: Fivewalls empowers home buyers and sellers to find the best real estate agent for their families. We've done all the work for you by creating one secure site to meet and contact top real estate professionals from leading brokerages.
Kirsten Pedersen is a Fivewalls Agent.
