My question is: Canadian-specific
QUESTION: My husband and his sister will each inherit a half share in their
mother's townhouse (Value $300,000) here in Richmond. Probate will be
completed in mid Sept/06.It needs to be renovated before its ready for sale.
There needs to be about $10, to $12,000 spent on renovations before this
sale and my husband and I are the major reno workers.
We heard that if they sell this property within one year they are exempt
from any capital gains tax. If not, do they declare the property at the
value that it was now assessed at by the estate, then take off the cost of
the renos, any real estate fees etc and are taxed on the profit from this
sale only?
Nothing appears to be very clear.
Thanks. S B
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david ingram replies:
There is no one year rule. If mom passed on Xmas day and by Valentine's day
the townhome had gone up $50,000, the $50,000 would be taxable.
If the house was just sold, any profit after death would be a capital gain.
However there is a fine line between fixing things up to sell for a better
price and doing major renovations to get a really great price.
If you can be considered renovators by the CRA, then the estate would owe
tax on the whole gain. If it is a capital gain, the estate only owes tax on
one-half of the gain.
In fact, depending upon the price realized, it could be better to get a
lesser price than to do a lot of work and pay more than twice the after
putting out a lot of effort.
And, if you took six months, spent 20,000 and a lot of work and the market
fell 15%, you could actually end up losing money because of timing.
I have been doing this for 43 years and seen a lot of people lose out
because of changing markets.
No matter what you do, the profit is the sale price less real estate
commission less costs of the renovations or repairs less the Value of the
property on the date mom passed.
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