A reader asks me, “I would like to know if moving into a private senior residence (RPA) is better to sell or rent the house.” To clarify, I am the sole owner of my home, I have one Spouse who has no children, I have two children of my own (40 and 30 years old) and my will states that my children will own the house equally. What tax implications will my decision have for me and for my children? »
As with all tax questions, the answer is “it depends”. For the sake of the article, let’s stick to the basics and assume the house is paid for. Ludovick Nadeau, tax specialist at Gestion Fiscal de l’Etrie, helped us answer the question.
1) Immediate sale
First, because it is a primary residence, the sale will not result in a tax on the capital gains. Apparently the children will no longer inherit the house since it has been sold. On the other hand, if you want to leave the profit from the sale to the children, the donation is not taxable.
If one of the two children wants to take possession of the house, you can give him the equivalent of his share and use the amount as a down payment towards the purchase. There is also the possibility of inheriting the house to the children during their lifetime. This is to be discussed with a notary.
2) Rental
It is certain that the income generated by renting out the house would allow part of the RPA to be paid. RPAs can be very expensive, so it all depends on how much money we have set aside. On the other hand, the house becomes a rental property and is no longer considered a main residence from this point on. You should therefore be aware that the profit from this rental will be added to your personal income and will affect all calculations on your returns (taxable income, income used to calculate eligibility for certain credits, etc.).
In addition, the children who will inherit the house at the time of your death will receive their inheritance in “Value”. If one of them decides to take possession of the house, he must buy it from the estate (by paying the other heir’s share). For example, let’s say your son’s name is Matthew and your daughter’s name is Julie, and the market value of the house is $100,000. Mathieu and Julie therefore inherit $50,000 each, and that amount is not taxable if the building was not rented. If Mathieu wants to buy the house, his $50,000 will be used to purchase the property. He must therefore pay the amount to be paid (50,000 US dollars) out of his own pocket or refinance the house.
The purchaser of the rental property, whether heir or third party, becomes the owner of the rental property and is subject to the appropriate taxation.
ADVICE
- We need to calculate whether we can save enough money for our retirement.
- Renting a home can be stressful, cause unforeseen expenses, and likely increase your tax rate. It is worth considering!
- For a full analysis of the matter, it is best to consult your tax advisor, as every detail can have a significant impact on the answers to your questions.