#CapitalGainsTax #InheritedHome #RetirementPlanning
Hey there! 😊 Sounds like you’re trying to help your parents navigate through some important financial decisions for their retirement. Inheritance and taxes can be confusing, so let’s try to break it down:
So, when it comes to inheriting a home and capital gains tax, here’s what you need to know:
– The capital gains tax applies to the gain in value from the original purchase price to the selling price.
– If your grandmother’s house is inherited by your mom and she sells it for a similar price to what your grandmother purchased it for, there might not be a significant capital gains tax. 🏡💰
– Additionally, besides capital gains tax, other taxes to consider when selling a second property could include income tax on the profits.
It would be beneficial to consult with a tax professional or financial advisor to get guidance tailored to your specific situation. Do you have any other questions or concerns about this topic? Let’s discuss! 🤔💬
You will also have probate fees on the total assets of the deceased if in Ontario
When grandma passes away, her property will be deemed sold at its fair market value. If it was her principal residence and the property qualifies, she’ll claim the principal residence exemption which will result in no tax. Mom will then inherit grandma’s property at fair market value (grandma’s deemed sale price) which will then be her cost basis (amount considered paid for it). When mom sells, she’ll pay tax on a future sale price less selling costs less her cost basis.
Depending on the province there may be property transfer tax from the estate to beneficiary (mom).
Depending on the situation and the other assets your grandmother may have (ie RRIF, securities, etc), it would be important to involve an accountant to provide any further guidance.
CRA Link – https://www.canada.ca/en/revenue-agency/services/tax/individuals/life-events/doing-taxes-someone-died/prepare-returns/report-income/capital-gains.html#
The estate pays any tax owing, not the beneficiary. If this is your grandma’s principal residence (which I’m assuming it is), then any capital gain up to the point of her death is tax free.
The beneficiary inherits at fair market value at the time of her death. If they subsequently sold it, there would be a taxable capital gain if the house increased in value since they inherited. If they sold soon after inheriting, it’s unlikely to be an issue.
So tl;dr: your mom won’t have much of a tax implication if any.
I’m sorry about your grandmother.
There are no capital gains on principal residences. If your grandma passes it will trigger a deemed disposition of her home. The cost basis to your mother will be the FMV of the home at the time of passing. There will be no capital gains tax, but the estate will be responsible for paying any debts (mortgage) remaining. Your mother will have a capital gain (or loss) when selling the property. That tax (or loss) will be applied to the difference in market value between inheritance date and sell date. If this is in the same calendar year, typically it is nulled as you declare the sold price as her cost basis. There will also be probate fees and lawyer fees when dealing with the estates assets.
Your parents will pay no tax. Your grandma will be taxed as if she’s sold the house for fair value the day of her passing. Your parents are deemed to have acquired the house for that price.
If she can claim the primary residence exemption, that tax will also be zero.
Capital gains isn’t 66%. It’s ordinary income tax on 66% of the gain over 250k (and 50% of the first 250k). Gain is the difference in sale price compared to purchase price.
Transfer everything now, before death
Consult with your cpa