What are the tax implications of selling a parent’s home?
Want to avoid a surprise tax bill when you sell your parent’s house? Read this now.
Quick answer
Selling a parent’s home can trigger capital gains tax, probate costs, and reporting obligations — but in Canada there are powerful rules (principal residence exemption and deemed disposition at death) that often reduce or eliminate tax. Know the timeline, the ownership status at death, and the adjusted cost base (ACB). That’s where money is saved.
How the tax rules actually work (Canada-focused)
- Deemed disposition at death: For Canadian residents, the property is generally treated as sold at fair market value (FMV) on the parent’s date of death. Any capital gain up to that FMV belongs to the estate.
- Adjusted cost base for heirs: If you inherit, your cost base is the FMV at the date of death. That means you usually owe tax only on appreciation after the parent’s death — not on gains that happened during their lifetime.
- Principal Residence Exemption (PRE): If the home was the parent’s principal residence for all qualifying years, the estate may claim the PRE to eliminate capital gains on the deemed disposition. This reduces or removes tax.
- Reporting: Estates report capital gains on the deceased’s final tax return. If the property is sold later by the heir, the heir reports any post-death gain on their own tax return (Schedule 3).
Step-by-step checklist before you sell
- Confirm ownership and title. Was the home solely in the parent’s name, jointly held, or transferred before death? Each scenario changes tax and probate results.
- Get a current professional appraisal. FMV matters for both deemed disposition and your ACB.
- Check principal residence years. Ask your accountant if the estate can claim PRE for the parent.
- Review probate and executor fees in your province. These are not income tax but can be substantial.
- Talk to a tax professional. If the parent transferred the house before death, or there are gifts, trusts, or non-resident factors, taxes can be complex.
Common traps that cost money
- Assuming no tax because you inherited the house. Not always true — post-death appreciation is taxable.
- Transferring title before death without professional advice. That can trigger immediate capital gains or attribution rules.
- Ignoring reporting deadlines. Missed filings create penalties and interest.
Practical selling tactics to reduce tax and maximize proceeds
- Use PRE on the deceased’s final return when eligible.
- Time the sale. If property values are volatile, consult a CPA about holding a short period vs immediate sale to manage gains.
- Separate estate expenses. Legal, appraisal, and selling costs can offset capital gains.
Final move — what to do right now
Get an accurate market value. Call a market expert who handles estate sales and knows the tax touchpoints. I’ll connect you with trusted accountants and estate lawyers so you avoid costly mistakes.
Tony Sousa is a local realtor with deep experience in estate sales in the Greater Toronto Area. For a clear, fast valuation and referrals to tax pros, email tony@sousasells.ca or call 416-477-2620. Visit https://www.sousasells.ca
If you want, I can send a simple checklist you can give your accountant. Ask me for the estate sale checklist and I’ll email it to you.
