Selling your loved one’s home after their demise will be a complex, time-consuming, and likely stressful process. There are some tax-related implications in Canada (and the US, for that matter), not to mention finding a good buyer for the home could take some doing.
Get organized and prepare yourself – both emotionally and practically – to make the process smoother and less stressful. Start by informing yourself of the rules and regulations involved, and then tackle the most important bits proactively to avoid delays down the road.
To help you out is a go-to reference guide to selling a loved one’s property after their demise, with an emphasis on the financial aspect.
From time to time, I invite other writers to share their expertise with you. Today I’m turning my blog over to my friend Mike from elderfreedom.net to help walk us through the difficult process of selling a loved one’s home their after passing.
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Double-check your obligations
If you’re at the stage of selling your loved one’s home, you have likely fulfilled your legal obligations already and have possession of the property in question. If not, it should top your priority list. The CRA needs to be notified, and you have to participate in the probate proceedings and estate administration, as applicable.
If your loved ones left their property to you through a will (or trust or similar), you can proceed with the sale. If they didn’t have a will, they have died intestate and you have to apply to the court to be appointed as the estate administrator first.
Consult with an attorney when in doubt.
Determine your tax liability
Generally speaking, you don’t have to pay inheritance tax on the family home in Canada, fortunately. However, capital gains tax will apply to a secondary residence, such as a cottage, or commercial real estate.
While capital gains taxes are the cheapest tax you will ever encounter, according to TSI Wealth Daily Advice, it’s something you need to factor in from the get-go.
Keep in mind both your loved ones and you may be liable for capital gains tax (yes, even after their demise, but only if they owned secondary homes or commercial properties). When your loved ones transfer their secondary home or property to you (posthumously), they pay a capital gains tax.
If you already own a primary residence, you will be subject to capital gains tax on the increase in value from when you inherit the home and when you sell it.
How is the capital gains tax determined?
The capital gains tax is based on the gains (profit) made on the date of the transfer of the property. If your loved ones’ house is valued at $200,000 when you got it, for instance, and you sell it for $250,000 (based on current market conditions), the capital gains tax would apply to you on the $50,000 profit.
The status of the real estate in question will decide the final amount. If you’re selling your loved ones’ primary residence, you pay 50% of the capital gains made, included in your income for the year (and taxed according to your bracket).
If it was their secondary residence or commercial property, the entirety (100%) of the capital gains made would be included in your income and taxed accordingly.
You are strongly advised to do these two things:
- Have an appraisal done: Home appraisals are a part of the probate process. The appraiser determines the property’s fair market value(on the date of possession). This will help you determine your exact tax liability when you sell the house later.
- Pay estate tax (when applicable): Estate tax is nothing but the capital gains tax paid by the deceased on the property when it’s transferred to you. It only comes into play on secondary homes and commercial real estate (as belonging to the deceased). If you can’t pay the amount on their behalf, it will be taken from the value of the estate. This doesn’t apply to primary residences.
Can you avoid capital gains tax altogether?
Your loved ones can’t avoid paying capital gains tax when transferring the property to you (when applicable). However, when you sell (transfer) the property later, you may be able to avoid paying capital gains tax altogether, according to Square One.
First, you could sell the house immediately, meaning there would be no appreciation in its value.
Second, you could make it your primary residence, which can’t be taxed when sold. The latter option is possible if you’re renting and can move in. Again, consult with an attorney for more reliable advice.
Prioritize maintenance and upkeep
Until you sell the house, you need to keep it in good shape. Not only will this preserve its value, but it will help you sell faster – everybody likes a clean, well-maintained house.
- Inspect the property: Start by inspecting the property. Some critical aspects to check are the foundation, roof, heating, electrical, and plumbing. Look for pests, mould, and radon (gas). Take a look at the septic system and well water (if applicable). Finally, check for damage – look at the appliances, the walls, floors, and the upkeep.
- Perform repairs: You will need to make the house livable and safe for new buyers. This may involve minor and major repairs. Some inexpensive repairs are easy kitchen updates and quick bathroom repairs. Some pricier, heavy-duty repairs – which you will likely need a pro to help with – include window replacements and flooring updates.
- Pay the bills: Last, but not least, pay for the utilities and other expenses. This includes electricity, heat, and water. Also, you may want to keep the home insurance policy going. You may have to have it transferred over to you first.
Evaluate the security arrangement
Safety is a critical consideration when you’re not occupying your loved one’s home. It’s sitting empty and has been reported as vacant, which makes it an easy target for criminals and thieves.
How are you planning on keeping it safe until you sell the property? Some suggestions:
- Install a home security system (doubles as a selling point)
- Change the locks
- Secure the doors and windows with extra locks and fastenings
- Install motion detector lights
- Purchase home insurance
- Put a vehicle in the driveway (to make it seem like you’re home)
- Have a neighbour, friend, or handyman visit on occasion
- Ask a neighbour to pick up the mail, or have it rerouted to your home address
Remove all your loved one’s personal belongings
One of the most emotional parts of the process is going through your loved one’s personal belongings. Be sure you are legally entitled to take on this task before you start.
Identify any beneficiaries from the will and give them their inherited items.
Keep a few cherished or valuable items. Give mementos to your loved one’s close family and friends. Sell any valuable items that you don’t wish to keep.
Donate clothes and household items that are in good condition to charity. Throw away anything that’s broken, stained, cheap, or otherwise unwanted.
Non-perishable food that is before its expiry date can be donated to a local food bank. Perishable and expired food should be thrown away.
Keep all important financial records, such as recent income tax returns, house deed, passport, insurance information, and bank statements. Shred any documents that you don’t need to keep, to help prevent identity theft.
You may want to leave some of the furniture and a few household decorations to make the house more attractive when you list it for sale.
Invest in additions and improvements to maximize curb appeal
Interior and exterior modifications to your home can make the property more attractive to potential buyers.
Minor modifications are usually affordable and include adding new fixtures or planting a garden.
Major modifications may be more expensive. Some examples are setting up a home office, adding a separate garage, and installing a patio or deck.
Not all modifications will pay off. Talk to your estate agent and do some market research before investing your hard-earned money.
House stage to boost the property’s value
House staging is the practice of prettying your house up for potential buyers. If your house looks beautiful, buyers are likely to snap it up quickly.
You can beautify your house before viewings by adding designer furniture (temporarily), having it cleaned, decluttering, and adding extra lighting.
To minimize costs, you can stage once and then organize virtual tours. Realtors can help you with the whole process, as can specialized staging companies.
Give the home a thorough cleaning, including inside the kitchen cupboards and appliances.
Be sure to take plenty of pictures – they can give your “for sale” listings online extra oomph.
Calculate the asking price for your home
Before you can sell your home, you will need to come up with an appropriate asking price. For this, you should research the local property market.
Take a look at the going rate for properties similar to yours in the neighbourhood to get a reliable baseline. Realtors can suggest a suitable price, as can appraisers.
List the house for sale
Once you have the legalities sorted and the house is in good shape, you should list it for sale. You could do this yourself (FSBO or for sale by owner) or through a real estate agent.
Selling the house yourself will be time-consuming, not to mention harder. On the flip side, you won’t have to pay the agent’s commission. You will still need to pay the buyer’s agent and MLS fees. You can list your house for sale on online sites such as Centris or multiple listing services (MLS). I-buyer is also an option worth considering.
On the other hand, a realtor can often get a better selling price, because they have extensive knowledge of the local real estate market. They can also help protect you against legal risks.
Sell the house
You will begin receiving offers on your property. It may take a few days, weeks, or even months to sell, depending on your expectations and current market conditions. Do these three things:
- Gather documents: Homebuyers will need some documents from you – surveys, deeds, property tax receipts, transferable warranties, insurance details, utility bills, and renovation contracts. Also, they will want you to disclose “Latent defects” to the house. Other paperwork is also required.
- Negotiate: You have the option of accepting, negotiating, or declining the offer. It’s almost always a good idea to negotiate. Go higher, and then meet them in the middle.
- Close: After a price has been settled on, you will draft an appropriate agreement. The homebuyer may want the option to withdraw if certain conditions are met (or unmet), which is known as a conditional sale.
Report the sale
In addition to the usual paperwork, you will have to report the sale of the inherited property via your tax return for the year in Canada.
As mentioned previously, it may result in a capital gain at 50 percent or 100 percent. Failing to report the sale could lead to legal trouble.
Enlist professional help
As you can probably tell, the entire process is complicated. Enlisting professional help can make it easier for you.
Attorneys are great for advice and legal paperwork, as are accountants.
Handymen and similar professionals can help you repair, maintain, and beautify the house, among other things.
Lastly, real estate agents and brokers can sell on your behalf, at the right time and for a good price.
Take your time with the house selling process – a botched sale will eat up any tax savings you could make by selling immediately.
Talk to experienced estate agents and do your market research to get the best price.
As a rule of thumb, the more work you put in, the more profitable it will be for you.
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