Personal Finance

Buying House from Parents

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  • Jun 25th, 2014 1:50 pm
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Deal Addict
User avatar
Feb 6, 2012
4947 posts
425 upvotes
Gloucester, Canada

Buying House from Parents

Hi,

I am trying to find information in regard to buying house from your family member. I am currently thinking of perhaps purchasing my parent's house. They are getting old and are planning to sell their home in the new future. My wife and I have some saving and plan on using HBP. Has anyone here purchased home from their parents before and if any of you know any good site to look up for such information? Does anyone know if there is a set price that your family must sell the house to you at? Can they sell it at a discount so we can save on tax and lower down payment?
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7 replies
Deal Addict
Oct 3, 2011
1212 posts
269 upvotes
OTTAWA
I went through a private purchase of a condo before. In your situation, I guess your parents and you (being a family) need to hire a lawyer to complete the sale and purchase papers. Being the same family to hire the same lawyer would save some money provided both the vendor and the purchaser trust each other. Good luck.
Member
Apr 27, 2014
390 posts
135 upvotes
Mississauga, ON
I'm going to assume this is your parents principle residence. Going off that assumption there will be no capital gains tax on the sale of their home regardless of who they sell it to as they can use their personal exemption.

This leaves only land transfer tax in terms of taxes to pay. Lower selling price will obviously mean less tax so the real question here is how much of a discount are your parents willing to give.
Deal Addict
User avatar
Feb 6, 2012
4947 posts
425 upvotes
Gloucester, Canada
expatflame wrote: I'm going to assume this is your parents principle residence. Going off that assumption there will be no capital gains tax on the sale of their home regardless of who they sell it to as they can use their personal exemption.

This leaves only land transfer tax in terms of taxes to pay. Lower selling price will obviously mean less tax so the real question here is how much of a discount are your parents willing to give.
It is currently their principle residence. But it may or may not be once they sold it to us (We may rent it out to them or they will just move some where else).
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Sr. Member
Feb 5, 2013
592 posts
109 upvotes
Well, I would imagine if they can gift it legally, they can sell it at any value they want too. I guess a lawyer will know for sure.
Deal Addict
Dec 11, 2007
1958 posts
582 upvotes
Markham
i dont think buying it from them at anything other than FMV is a good idea. it will result in double taxation (or single taxation where there shouldnt be any) because in non arms length transactions

there are basically 3 scenarios, for transaction set at price X.

X < FMV
seller's proceeds of disposition will be adjusted up to FMV
buyer's cost basis will be set at X

X > FMV
seller's proceeds of disposition will be X
buyer's cost basis will be adjusted down to FMV

X = 0 , ie gift
sellers proceeds of disposition is adjusted to FMV
buyer's cost basis is adjusted to FMV


since its your parents principal residence, they dont face any capital gains tax, but if you buy the property from them at < FMV, your cost basis will be artificially below FMV. since it sounds like you plan to use this house as a rental, down the line when you sell or change its use (you decide to move into it as your principal residence), you will be required to pay cap gains tax based on the artificially low buy price.

be careful with gifting, as gifting a property requires no consideration. if you plan to pay them back some how (down the road), that would be considered consideration, and the transaction is no longer a gift.

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