I Have Just Inherited Property. What Should I Do?
Do Your Homework
Inheriting property can be an exciting time in your life. There can also be mixed emotions depending on the circumstances. The number of older Canadians is growing. This has caused the most significant number of inheritances Canada has ever seen. This trend is still on the rise.
If you are the estate’s executor, you will have several responsibilities. The executor must pay the income taxes owed by the estate before distributing the estate to any beneficiaries. In the case of real estate, the government considers that the person disposed of the property just before they died. The market value of inherited properties is deemed to be tax-free if the property was designated as the principle residence of the deceased.
The great news is that there are no inheritance taxes in Ontario. This means that there are no taxes that a person who inherits from an estate must pay. However, there are some situations where taxes or charges such as water, hydro or municipal taxes might be owed on your inherited property.
What To Do with the New Property?
Now that you are the inherited property owner, you must consider your next steps.
- Where is the new property?
- Do we want to live there?
- Do we sell the new home?
- Do we sell our current residence and move into the new property?
- Do we rent our home or the new one?
- Are there tax consequences if we sell or stay?
Your REALTOR® can assist you with evaluating these questions.
Before You Make a Decision, You Should Consider:
- If you sell your principal residence, there are no capital gains taxes
- If you sell the inherited property, you are liable for 50% tax of the capital gain (subject to lifetime maximums)
- Capital gains are calculated by subtracting the fair market value at the time of acquisition from the current sale price
Make a Plan
- Reach out to family members to find as many documents as possible about the inherited property, bills of sale, tax records, utility bills, renovation, leans, and any mortgages
- Work with your REALTOR® to get comparative market analysis of the property
- Pay any capital gains (if selling the inherited home or if it was not deemed a principal residence)
- When selling a property that was gifted to you, you will be responsible for paying any applicable capital gains tax
- Check with your accountant to help you understand your lifetime capital gains exemption
- Check with your REALTOR® if you’re considering renting the new property
- Keep very accurate records of all your properties and have an updated will
Inheriting a property from family members can be a very emotional time. It is essential to keep family memories and emotions separate from making the best decision for you and your family. Your REALTOR® can help by offering their objective, professional opinion in these emotional times.