Financial Channel

If my parents are selling a rental property to me would they have to pay taxes?

For instance, let's say the house is worth $250,000 fair market value but they sell it to me for $175,000 which let's say they originally bought it for $125,000. Can they just sell it to me for $175,000 and pay taxes on the $25,000 (50% of the capital gains) or would they have to pay taxes on the fair market value?

why don't u just get them to give it to you? and you can pay them "$xxx"/month and say its to help support mom and pop? you gotta think RFD ... i'm not sure how legal this may be so please consult a lawyer on this

if they just give him the house...and he pay them monthly, then his parents would have to report that as a second source of income. also whose title would the hosue go under, if they report it as a inheritance i think you have to pay tax on that...not sure if they give it to him as a "gift".

would you be living in the house or renting it out? i think that might affect things?

why not just ask your account it which is the most economical way for you and your parents?

no taxes on inheritance or gift. Check this out

link to source

I think in both situations there is a deemed dispostion at FMV. So they would be liable for the cap gains on FMV even if they gifted it to you.

Gifted homes will be assessed at the FMV. So your parent's will stay have to pay the taxes on the capital gains earned from FMV - original cost (divide by 2).

Even if they sell you the home below FMV, they will be assessed the FMV.

You also mentioned that they selling a rental property to you. If they have claimed CCA on this property while they were renting it out, be aware that there may be recapture when they dispose of the property.

If your parents are indeed selling it to you at a price that is below FMV, your parents will be taxed at the full gain of the house (250k - 125k) even though they are selling it to you at below FMV. However, the ACB to you will be the price you pay for it (i.e. 175k).

If/when you sell the property later on (assuming that you are not claiming the principal residence exemption), the capital gains will be assessed at the selling price minus your ACB which would be 175k. This scenario will result in double taxation since your parents paid tax on the full gain, and you will be paying taxes on the full gain again but at a lower ACB.

To every single post in this read......WRONG WRONG WRONG.
Do you guys just pull this information out of the air? Some of the advice can cost the OP's parents $25,000 in unnecessary tax. If you do not know the answer, why bother making a false statement?

Anyhow, here is the rule:

If you are over 18 (I assume so): then a gift or sale will not result in attribution. A sale does not have to be made at FMV.

Good luck.

And any facts to prove your statement?
Gifiting isn't always = disposition of capital assets

Like most people said, ask a lawyer.

Search here will give you more answers too (MoneySense forum)
http://forums.canadianbusiness.com/f...spa?forumID=16

If you trust everything on internet, you shouldn't!!

Purchase option:

Pros: Your parents get all the money upfront
Cons: They pay Capitol gains

Rent option:
Pros: Easier on your pocketbook
Cons: both parties have to submit it as a source of income/expense on their income tax

I would recommend that you read up on the difference between arms length and non-arms length transactions before saying that I'm wrong.

Yes, you are correct in saying that attribution will not apply in this situation, but there may be other tax consequences as a result of this sale. None of us know the OPs exact situation enough to give a usable answer.

I am VERY familiar with arms length and non-arms length transactions. In this scenario, we know it is a non-arms length transaction as the parties involved are spouses and children. So, I am not too sure where you are trying to get at. And yes, attribution rules will not apply. If you agree with that (which you did), I am not sure why you wrote your earlier response which is completely false.

If the OP was <18, then the sale MUST be made at fair market value to avoid attribution.

In this situation, gifting is a DISPOSITION. We are talking about a rental property. You cannot just toss a property to your children and not expect a disposition.

Also if this is the first time they are selling the house, they pay no capital gain tax. It is tax free. Gifts/Inheritance to kids are tax free. Check Cra website and best is to talk to an accountant.

I was not writing about, or implying that there will be attribution in my original post. I was talking about the possibility of double taxation which is entirely different from attribution, but something the OP should be aware since he is proposing that his parents sell him the house for less than FMV.