Inheriting a home can be a painful process. The legal and financial ramifications of inheritance may be the furthest thing from your mind. 

We’ve made this guide to property inheritance in order to help alleviate some stress. We cover the options you have when you’ve inherited a home, your legal duties, the possible tax and financial ramifications, and the home selling process.

That’s a lot of material to cover, so we’ll start with our first piece of advice: Take things slowly. Read through whatever resources you need to, talk to professionals (including real estate lawyers), and take whatever time you need to process your grief. You may find yourself needing guidance along the way. Feel free to contact us – we’ll put you in touch with one of our contacts. We know real estate lawyers, accountants, and other professionals who can help you. 

 

Understanding your options

When you inherit a property, you generally have three options: You can move into it, you can rent it out, or you can sell it.

 

Move-in

Moving in is generally only a viable option when:

  • You don’t own a primary residence, or you’re willing to sell your primary residence to move in.
  • No one else has inherited the property.

We’ll talk about the tax implications of inheriting a primary residence in a later section. 

 

Rent

Renting out the home you’ve inherited can be a good source of passive income. This option is often also used as a compromise when multiple parties have inherited the property – one or more people can move into the home while the rest of the home is used to generate rental income.

There are some major downsides to using an inherited home as a rental property, however. Changing the status of a home from a primary residence to investment property carries tax implications – more on that later. You’re also taking on risk and labour – bad tenants, missed payments, damaged property, and more can lead to serious headaches. 

 

Sell

Most inherited homes are sold shortly after they’re inherited. There are many advantages to selling, the most obvious being that it makes the value of the home easy to split among the parties who inherited it.

For tax purposes, as we’ll explain in detail below, it’s often a good idea to sell an inherited property quickly. At Solution Home Buyers, we buy homes that have been inherited, no matter what condition they may be in. We’ll help you sell your home quickly and with no hassle – in a later section, we’ll give you more details about how we can improve your home selling experience. 

 

Understanding your legal duties

Acquiring Grant of Probate

In almost all circumstances, you’ll need a Grant of Probate in order to sell a home you’ve inherited. To obtain a Grant of Probate, you’ll need to speak to a lawyer. They’ll guide you through the process and advise you of all of your legal obligations when administering the estate.

 

Staying informed

Real estate law is complex at the best of times, and things become even trickier when inheritance is involved. Stay in a dialogue with your lawyer and your accountant, and read our blog for more information and tips on selling a home you’ve inherited. 

 

Understanding taxes on inherited properties

Is there inheritance tax on Alberta homes?

Many countries around the world have an inheritance tax – but not in Canada. Though the estate may be taxed for different reasons – we suggest discussing them with your lawyer and your accountant – inheritors of a property will not be charged an estate tax. 

Canada does, however, have a capital gains tax. This tax can impact you if you sell a property you’ve inherited. 

 

How capital gains tax works on inherited properties in Canada

Capital gains tax is a form of income tax. When you sell a home you’ve inherited, you may be charged capital gains tax. Generally, capital gains tax breaks down like this:

  • When selling a home you inherited that becomes your primary residence, you do not have to pay capital gains tax.
  • When selling a home you inherited that was the previous owner’s primary residence but not your primary residence, 50% of the capital gains of the home may be taxed.
  • When selling a home you’ve inherited that is not your primary residence and that was not the primary residence of the previous owner, 100% of the capital of the home may be taxed.
  • When selling a commercial property you’ve inherited, 100% of its capital gains may be taxed.

Capital gains tax doesn’t apply to the value of a property – instead, it applies to the amount of value that the property has accrued since it was purchased. Imagine, for example, a home had been purchased in the 1980s for $100,000. This home was the primary residence of the owner. You inherit this home and determine its current value is $500,000 – it has accrued $400,000 worth of value since it was purchased. You already have a primary residence, so you opt to sell the home – you’d have to pay capital gains tax on 50% of $400,000, which is $200,000.

Note that you won’t have to pay $200,000 in tax – that would be absurd. Instead, $200,000 will be added to your income, and you’ll have to pay the marginal tax rate on that income. This means the sale of inherited property can lead to your tax rate going up – we highly encourage you to speak to an accountant to better understand the tax implications.

The realities of capital gains tax mean that it’s a good idea to either move into or sell an inherited property quickly so as to avoid paying additional taxes on gains. We also highly encourage you to determine the fair market value (FMV) of the property during the probate process.

We can help by putting you in touch with home appraisers, as well as by providing you with simple, hassle-free, and timely solutions for selling your home. 

 

Understanding the selling process

Getting consensus

The first step to selling the property is to ensure that everyone who is entitled to a share of the property, or any items within the home, gets what they’re entitled to. This can lead to long and sometimes heated discussions, which is why having an arbitrator can be useful.

 

Cleaning up

Once everyone who is entitled to contents within the property has received them, there’s the matter of cleaning up the rest of the property. This process can be difficult, both emotionally and in terms of the labour required. 

One of the advantages of selling with Solution Home Buyers is that we can take care of any items left behind in the home. This dramatically reduces the amount of labour you have to put in – and we can even donate items to your favourite charity on your behalf (or the behalf of the estate). 

 

Finding a buyer

You cannot sell a home without a Grant of Probate. You can, however, look for a buyer without a Grant of Probate. We encourage you to do so. Obtaining a Grant of Probate in Alberta can take weeks, if not a month or more. Simply disclose to your buyer that you haven’t obtained a Grant of Probate yet, and talk to a real estate lawyer to ensure that everything you’re doing is above board. 

 

Finding the right partner

Listing on the traditional real estate market is an option when selling an inherited home – but it’s an option many Albertans forgo in favour of selling with Solution Home Buyers. We buy houses in Edmonton and the surrounding area. We offer a simple solution to selling an inherited home quickly. We’ll help you with your responsibilities, give you resources, and relieve some of the stress associated with selling an inherited home.