Minimizing Capital Gains on Inherited Property
Firstly, it’s important to note that the estate pays the capital gains tax, not the recipient. That being said, this obviously means less money is then divided up to the designated recipients. Note that a property can transfer to your spouse tax-free, however, the capital gains will need to be claimed by the estate of the last survivor.
Tip #1
Plan early!
Planning early with your accountant and tax specialist is key. More options exist the sooner you begin planning for things like this. 10 or more years out is not excessive.
Tip #2
Transfer title early during a downturn.
Real estate markets tend to be cyclical. You can transfer title to your recipients early during a downturn when the property’s value is relatively low to minimize the capital gains tax.
Tip #3
Establish a trust
A third option is setting up a trust. A trust allows you to transfer the title of your property to be held for the benefit of the beneficiaries of the trust which can be determined by you. A trust will avoid probate fees upon death. Probate tax is about 1.3% of the estate’s value.
A big thanks to Jordan Cahill of Cahill Chartered Professional Accountants for helping us with this article. More information on Jordan and his team can be found here.