Costs associated with joint rent

Thanks for your question, Judson. Depending on both of your tax situations, there are a few different types of fees that you may both need to consider. Depending on your specific circumstances, you can, for example, look at possible capital gains taxes, transfer taxes, legal costs, accounting costs and finally commission costs in the event of the death of one of the joint tenants. Let’s take a look at them all:

Capital gains

Think of capital gains tax as the compensation that the government gets when we profit from the sale of an investment. An investment can be any asset that has been bought and later sold. You can have a capital gain (meaning you made money from the sale). And you may have a capital loss (meaning you lost money from the sale). Half of that “profit” amount is added to your taxable income and taxed according to the income tax bracket.

In your particular case, Judson, this kind of tax can hit you and your father a few times. First, when your father is in the process of transferring the portion of the property he owns to you as a co-tenant, he will have to sell the portion he owns so that it can go to you.

The first step of transferring your father’s real estate to you will activate the capital gains tax for him (if the real estate is not his primary residence).

To calculate: He subtracts the value of the property being transferred to you by the cost he originally paid for it, then multiplies that amount by 50%.

The second time you run into the capital gains tax is when you, Judson, sell your portion of the property now in your name.

For example, let’s say you and your father later decide to sell this property, then the capital gains will be recapitalized on the remainder of your father’s property. Again, you would calculate the capital gain for you by subtracting the sale price from the amount the property was transferred to you and then multiplying the result by 50%.

Finally, another time when capital gains can arise is if the property is still in possession at the time one of the owners dies. In that case, the deceased’s assets are transferred to the estate at market value on the date of death.

This post What is the cost of co-tenanting a parent’s property?

was original published at “https://www.moneysense.ca/columns/ask-moneysense/joint-tenant-fees-parents-property/”