inherited lot - tax accountant needed

[timallix]

I created a post a few months ago about the lot my parents have gifted me, a beautiful half acre ocean view lot in Parksville, BC.

As my parents are still alive, I am told that they would have to pay capital gains on the lot if they sign it over to me before they die. Seems a pity to give away such a staggering amount to the undeserving govt, besides, I`d like to take possession, sell the lot and buy some postive cashflow properties now, before they die! Show them that I can do something smart with the money!

A friend of mine assures me that CRA is not connnected to Land Titles, and that I could probably get away with it, but I`d rather not do anything sneaky.

Can anyone give me the name of an accountant who might know a way around this?

Thanks,
Tim Allix.
604-905-0670

 

[invst4profit]

Are your parents aware that it is your intention to sell the lot ?

 

[JRL]

As my parents are still alive, I am told that they would have to pay capital gains on the lot if they sign it over to me before they die.
NOT a tax expert (am an accountant, though), but...

I`m pretty sure that no capital gain can be levied until the property is actually disposed of and the proceeds from disposition exceed the adjusted cost base. If they just gave it to you now, I`m sure it could be classified as a "gift", which would be great. If they gift it rather than you obtaining it at probate, you avoid estate tax, which is great tax planning.

 

[albainstar]

disposition is deamed to have happened any time a property changes hands
So you would have to pay the tax, and it doesnt matter if they give it to you now or if they will it to you the tax occurs when the tranfer happens.

The tax will be owed on the price difference between the protery value they bought it at, adn the value now. Then cap gains is on the profit, take that # and cut it in half
Then you are taked on the remaining 50% at your take rate

ie
Parents paid 100k
it is now worth 200k
you take the 100k profit/gain and minus 1/2 =50k
You are taxed ont the 50k at your current federal tax rate

Step 1 have it appraised - how much gain are we talking?


There are few things you could try.....but they are all a little complicated
Insurance brokers often use to do it as any $ obtained from a life insurance policy is 100 percent tax free

SO you find out what the projected tax bill is, then you buy a life insurance policy on your parents for a lesser that amount. So it ends up costing you the amount of hte policy which is a lot less than the amount of the tax bill - Term would be the cheapest in this case

you can use the same idea to take $ out of a company or savings to give it to someone tax free


Example you have 500k in the bank. If you die the govt takes thier tax - about 1/2- and then the inheritance is split from what is remaining OR

you buy a Universal life policy for say 100k. Then you fund the investment portion of the UL policy with the 500K, leaving 0 in the bank.

SO when you die the total amount of the policy and the investment attached to it goes to the benificiary Tax FREE

 

[timallix]

QUOTE (albainstar @ Jul 15 2008, 02:53 PM) disposition is deamed to have happened any time a property changes hands
So you would have to pay the tax, and it doesnt matter if they give it to you now or if they will it to you the tax occurs when the tranfer happens.

The tax will be owed on the price difference between the protery value they bought it at, adn the value now. Then cap gains is on the profit, take that # and cut it in half
Then you are taked on the remaining 50% at your take rate

ie
Parents paid 100k
it is now worth 200k
you take the 100k profit/gain and minus 1/2 =50k
You are taxed ont the 50k at your current federal tax rate

Step 1 have it appraised - how much gain are we talking?


There are few things you could try.....but they are all a little complicated
Insurance brokers often use to do it as any $ obtained from a life insurance policy is 100 percent tax free

SO you find out what the projected tax bill is, then you buy a life insurance policy on your parents for a lesser that amount. So it ends up costing you the amount of hte policy which is a lot less than the amount of the tax bill - Term would be the cheapest in this case

you can use the same idea to take $ out of a company or savings to give it to someone tax free


Example you have 500k in the bank. If you die the govt takes thier tax - about 1/2- and then the inheritance is split from what is remaining OR

you buy a Universal life policy for say 100k. Then you fund the investment portion of the UL policy with the 500K, leaving 0 in the bank.

SO when you die the total amount of the policy and the investment attached to it goes to the benificiary Tax FREE


Parents paid a pittance in 1966, only 16k for 3 acres. Now subdivided, my 1/2 acre has been appraised at $315k. So how does the math work on this?

 

[albainstar]

so 16k divded by 3 = price per acre then divide by half (or divide 16 by 6 = price per 1/2 acre)

= 2.666666 or $2666

So the aprasied value minus 2666 = 317351 growth
317351 /2 =
158675.50 is the amount that will be taxed to you at your current tax rate

 

[albainstar]

QUOTE (albainstar @ Jul 16 2008, 02:28 PM) so 16k divded by 3 = price per acre then divide by half (or divide 16 by 6 = price per 1/2 acre)

= 2.666666 or $2666

So the aprasied value minus 2666 = 317351 growth
317351 /2 =
158675.50 is the amount that will be taxed to you at your current tax rate


oh I am forgetting the gain is to your parents not you
As the govt say even if they Give it to you the disposition is at the current value, not the dollar they would sell it to you for in order to give it to you so is would be taxed at thier tax rate - not yours and is payable by them or thier estate


so they can just let you use it now and will it to you to avoid tax now and you follw the directions abouve to by life insurance for the tax bill that thier estate will have when they die.

 

[CargrenInvestments]

Just a thought. Could you get it appraised and take out equity in the property (say 80% of its value) to finance other investments? The interest would be tax deductable and no taxes until you sell this property.

Rob

 

[albainstar]

the intrest would be tax deductable but the cap gains would still be payable by the parents, either way

she really needs to sit down with a tax planner/ insurance agent aseven if she doesnt get he peroperty now, sound like she will eventually and the estate may not have enough $ to fund tha taxes incurred at death

this is important for all the have investmetns, rsps - to plan a tax plan for your inheritants so they say dont have to sell the family cottage they enjoyed summers in becouse they/ the estate doesnt have the money to cover the taxes

it is another great reason to talk to a estate planner and or life insuracne agent as you can not simply give $ or propperty, or rsps etc to inheritance without them paying tax on it!!!

 

[invst4profit]

If a parent were to add a child on to the existing deed would that have any tax implications.
The child, at time of death of the parent, would then be sole owner and no taxes would be due until sale.
Assuming a child could be added to the deed they could then build a house on the property,while the parent is still living, live there for a while and then sell without being taxes as it would be a primary residence.

 

[timallix]

QUOTE (invst4profit @ Jul 17 2008, 05:43 AM) If a parent were to add a child on to the existing deed would that have any tax implications.
The child, at time of death of the parent, would then be sole owner and no taxes would be due until sale.
Assuming a child could be added to the deed they could then build a house on the property,while the parent is still living, live there for a while and then sell without being taxes as it would be a primary residence.

That`s a good idea, but as the child, I really don`t have the resources, the time, or the access to start building a house. Living in the house is also not an option, as I run my own business in a different town. The plan is to buy existing revenue properties.

I guess I could have my name added to the deed, but I am still subject to capital gains upon sale, and that is the rub.

 

[albainstar]

i guess but to me a portion of something is better then 100 percent of nothing

 

[GarthChapman]

Adding your name to the Title might trigger the Land Transfer Tax in BC.