So if you are unsure of the value at the time of your acquisition, you can generally determine it from the decedent’s final tax return or the estate tax return, where this value would be stated.
A sale of real estate to a family member or someone you do not deal with ‘at a distance’ is generally – for tax purposes – made at fair market value. This is the case even if you legally sell it for less than fair market value, as was the case with your sister. The same would apply even if you gave it as a gift and didn’t get a cent. So using an artificially low selling price will not negate the capital gains tax. Capital gains are calculated on the basis of the fair market value, Johanna.
Capital gains and inheritance of a property
If you recently inherited the property, the current market value of the property and your adjusted cost basis may be about the same, meaning little or no capital gains tax to pay.
However, if it’s been a year or more, there’s a good chance the value has risen based on the performance of many Canadian real estate markets. A broker may be required to perform a market value analysis and give you your fair market valuation.
Sell to family
I’m not sure what the motivation was to sell the property at a discount to your sister, Johanna. If it was sheer generosity, that’s nice of you, but you still have to pay taxes. Given your charitable intent, you should probably get a donation receipt! But of course you don’t.
If the capital gain is large and you don’t need the money, consider spreading the receipt of your sister’s money over a period of up to five years, if it’s not too late.
When you do this, you may be able to claim a capital gains reserve and spread the capital gains over up to five years and potentially pay less tax. Whether this is possible or even worthwhile is a fact.
For example, the capital gain may not be that important, or you may be able to offset it against a contribution to your Registered Retirement Savings Plan (RRSP) using your sister’s sales proceeds.
This post Capital gains on sale of real estate to family
was original published at “https://www.moneysense.ca/save/taxes/capital-gains-when-selling-property-to-family/”