Increased value would be treated as a capital gain
Paul Delean
Province
Q: We purchased a home to help our daughter get established three years ago. She pays rent that covers the mortgage and taxes. She is now in position to purchase the property, which has appreciated to $280,000 from $170,000. We would like to sell it to her for the same price we paid, but have heard we could be subject to capital-gains tax. Is that possible?
A: Unfortunately, yes. Simply selling or gifting the house to your daughter would require that you declare the $110,000 capital gain, which could mean a tax bite of about $27,000 if you’re in the top tax bracket, said Nick Moraitis, partner at accounting firm Fuller Landau LLP.
Your option is to declare it as your principal residence for the three years, exempting it from capital-gains tax, but that means reducing the principal-residence exemption on your own home by the percentage represented by three years in your total ownership period. If you stay 20 years, that would be about 15 per cent, and you’d be taxed on that percentage when you sell.
“Is it cheaper to pay the $27,000 today or a hopefully lesser amount in the future when they sell? That’s what they have to analyze,” Moraitis said. Selling for the same price, or $1, could be an invitation for an audit.
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