Advertisement
What happens if you inherit a property and have no record of its value at that time? How can you determine the tax payable on its sale?
I sold a building that I inherited over 20 years ago. I don’t know the adjusted cost base (ACB) or fair market value of the building in 2003. How do I determine the value?
—Bill
When you sell real estate, you need to report that sale on your tax return, even if there’s no tax payable. Since 2016, this reporting requirement has also applied to a tax-free sale of a property that qualifies for the principal residence exemption.
When you inherit real estate, any accumulated tax, if applicable, is generally paid by the estate of the deceased. This is because when a taxpayer dies, they are deemed to have sold their assets on their date of death, and any tax payable is calculated on their final tax return.
One exception is for real estate left to a surviving spouse or common-law partner. If you inherited this building from your spouse or common-law partner, Bill, it may not be the property’s 2003 value that you need to determine.
By default, capital assets pass to a surviving spouse or common-law partner at their original cost, unless the executor of the deceased elects otherwise. In this case, you would declare any change in value between the original cost of the property and its fair market value at the time of sale. If the deceased taxpayer is in a low tax bracket in their year of death or has tax deductions or tax credits to claim, a value that is higher than the original cost may be reported.
A capital asset’s original cost is referred to as the adjusted cost base (ACB), and it’s based on: the original acquisition price (typically the purchase price); acquisition costs (like land transfer tax for real estate); and adjustments over the years (like renovations for real estate or reinvested dividends for a stock).
Assuming you did not inherit this property from your spouse or common-law partner, Bill, you would need to know the value of the property at the time you inherited it. It should be the fair market value of the property reported on the tax return of the person you inherited it from in 2003. If the building was their principal residence, it may not have been reported.
Assuming you have no record of that value, you could estimate the value on your own. If that’s not easy to do, you can have a realtor look up sales of comparable buildings in the same area around 2003 to try to determine a value. A designated appraiser may be the professional best equipped to provide a valuation based on historical sales data, if it’s available. A formal valuation by the Canada Revenue Agency is an option, but it is not required for your tax filing.
If you have done any renovations to the property since inheriting it, Bill, those renovations may have increased your ACB. Capital improvements are added to the original acquisition cost (the property’s value when you inherited it, in your case) to determine your tax cost in the year of sale.
If the property was a rental property, you may have claimed capital cost allowance or depreciation to reduce the net rental income in some or all of the years you owned it. Those past tax deductions are recaptured in the year of sale and included in your income.
It bears mentioning that if the property was owned in a corporation and you inherited shares of that corporation, Bill, it’s not the market value at the time of the inheritance that matters—it’s the original purchase price. This is because a corporation does not die when a shareholder dies. The corporation is treated as its own taxpayer, and the relevant cost for tax purposes when the property is sold is what the corporation originally paid for it.
There are additional tax implications for a shareholder that owns real estate through a corporation, but they go beyond the scope of this discussion. Assuming there was no corporate ownership in your case, Bill, the 2003 value is your starting point.
The Appraisal Institute of Canada has a tool to find an appraiser. You can search by location, property type or service type, including for capital gains tax purposes.
Share this article Share on Facebook Share on Twitter Share on Linkedin Share on Reddit Share on Email
Back into the tariff hurricane, Couche-Tard pumps profits, Macy’s loses $130 million, and is there too much optimism about...
MoneySense’s senior editor, Justin Dallaire, answers the My MoneySense questionnaire for MoneySense’s 25th anniversary.
Has a client ever gone silent or even hung up on you when discussing their portfolio or taxes? It...
Forced to become an entrepreneur, Alain Guillot forged an unconventional career as a financial pundit in Canada as an...
Contrary to the conventional advice, taking more than the minimum RRIF withdrawal can at times save tax on your...
Sponsored By
Simplii Financial
If you continue working in retirement, it could cause a clawback on your OAS. Here’s how to figure out...
Nvidia doubles revenue in one year, Canadian inflation moves in the wrong direction, Target misses badly, Walmart beats earnings...
Learn how to get mental health support in Canada, whether or not you have workplace benefits or insurance coverage.
Canadians with no children or siblings must consider estate planning alternatives. Here’s why trust companies can be a good...