US resident dies and leaves Ontario cottage which

My question is: Applicable to both US and Canada
QUESTION: My parents purchased land in Ontario in 1969, and had a small cottage built. The family has used this as a summer place. My mom passed away in May, 2004 and now my Dad wants to tranfer the property over to 4 of his 8 children. We have heard that he must first pay some sort of capital gains tax on her half of the property. As far as I know, my parents have never claimed anything about this property on their US income tax forms. Does he have a tax to pay and how easy is it for him to tranfer the property over to his children?
david ingram replies:
Canada has a deemed sale on death method of dealing with estates.  Therefore, your mother's half of the property became taxable upon her death.  If it is rolled into your father's name, the tax can be delayed until he disposes of the property.
However, under the US / Canada Income Tax Treaty, neither your mother nor your father is responsible for capital gains tax in Canada from 1969 to  Jan 1 1985
For US purposes, if your mother's estate is taxable for estate tax, any capital gains tax can be credited (as a foreign tax credit) against US estate tax.
If it is rolled over tax free and father then gives you the property, there will be Canadian Capital gains tax on the share he gives you. 
Of course, if the value is over $11,000 US each, there will also be US gift tax to consider.  In this case, he would give you the property with a mortgage and forgive the mortgage at $11,000 each until it is gone.
Glad to look after the returns including your mother's estate return for you.  Even if the estate is low enough that you do not HAVE TO file it, I recommend you do file when there is property in Canada because it means that the IRS has to deal with it NOW and they can NOT come back seven years from now because they suddenly found out about the Canadian property.
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