My father passed away in March 2012. My mother lives in a seniors’ residence. I currently live on the first floor of the family home, valued at $ 580,000. I maintain the property, pay the bills and rent the top. I am the sole heir to my parents. My mother would like to give me the house right away. Should I pay tax on this donation? And if I inherited it when he died, what would be the tax impact?
– Question from Francine
Whether your mother gives you the house while she is alive or you inherit it when she dies, there will be no difference from a tax standpoint. Indeed, in both cases it will be necessary to pay tax on the capital gain of the rental part, explains Yves Gratton, financial security advisor and group savings representative for SFL Placements. If there had been no rental part, there would have been no tax invoice, because this is the main residence.
How to calculate this gain? The adjusted cost base (ACB) is subtracted from the market value of the property. The latter includes the purchase price, as well as the costs of improvements made over the years. Please note that you cannot include expenses of a current nature, such as maintenance and repairs, in the CBR.
For example, if the price of the property is $ 580,000 minus an ACB of $ 200,000, we get an amount of $ 380,000. The latter only applies to the rental part of the building. Assuming that this represents 50% of the property, we then obtain the following result: $ 380,000 X 50% = $ 190,000. Fifty percent of this capital gain is taxable, or $ 95,000, on which tax will be calculated.
If your mother gives you the house while she is alive, the $ 95,000 will be added to her income and she will pay tax. If you inherit it on his death, the gain will be added to the estate. You will not pay tax directly, but the estate will have to pay it and you will have less inheritance.
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