# Tenants in Common with Mortgage



## Solidify (May 8, 2017)

Hello.

My family and I own a quadplex. We live on the main floor (one of the apartments) and rent out the two upstairs apartments as well as the apartment in the basement.
We are tenants in common and are currently paying off a mortgage load in the amount of $173,000.00. We have the following current balance left to pay: $149,479.53.
My mother owns 50% of the building (or mortgage debt), and my two sisters and I collectively and equally own the remaining 50% (so 16.6% each), after it was given to us by our father during our parents' separation.

I would like to revoke my share to my mother since the massive remaining debt is preventing me from qualifying for a decent mortgage of my own in my near-future plans to buy a home with my partner.
How can this be done?


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## Mortgage u/w (Feb 6, 2014)

You can ask for a title change but your lender may refuse if your mother and sisters cannot qualify alone. This also means you will no longer own the property.

Alternatively, you can ask your lender to take you off the mortgage and not the property title (so you retain ownership) but this too may be declined since majority of lenders will require the same covenants on mortgage as on title (except guarantors who are on the mortgage and not on title). 

So your choices are limited, but still possible. First step is to communicate with your lender.


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## AltaRed (Jun 8, 2009)

With a Tenants in Common title, everyone has their specific 'divided' share, i.e. the mother is named for 50% on title, and each of the siblings is named for 16.6% each. I agreed with the answer that it is easy enough to change title to mother 66.6% and the other two siblings 16.6% each. BUT the mother will have to qualify for the increased balance of the mortgage. It is theoretically possible to have different mortgage arrangements for each portion of the title, but I don't know of any lender who would actually do that. The lender would likely insist on identical convenants (and even cross-covenants).

For what it is worth, late-in-life couples with their own grown families sometimes will have tenants-in-common title so that in event of death, each share goes to their respective beneficiaries (not doable in a joint JTWROS title). But at this stage of life, the title would be encumbrance free.

Another point for the OP. Since this is a tenants in common title, depending on the property laws in the province, there will likely need to be a purchase and sale agreement attached to this 'transfer'.... since the shares are all 'divided'.


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## Solidify (May 8, 2017)

Assuming the bank tells me that my mother and sisters do not qualify without me, what are my remaining options?

My mother is retired and only gets about 1,500.00$/month through her various pensions. One of my sisters does not earn more than 35,000.00$ before taxes. And my second sister earns roughly 42,000.00$ but she does not live here with us; she lives in a condominium with her fiance and they currently have their own separate mortgage of about 150,000.00$. And I make 33,000.00$ before taxes. 

With that being said, I highly doubt the lender will accept those terms (to be frank, I think the only reason they accepted the transfer my father made was because my mother was working at the time and the rental income covers the majority of the building expenses, including property taxes, municipal taxes and monthly mortgage payments).

Secondly, is there a capital gains tax to be paid if I remove my name from the mortgage or title?


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## AltaRed (Jun 8, 2009)

If this is your principal residence (where you personally live) and you do not own other property that you have designated as your principal residence, there is no cap gains tax. BUT starting this year, you will have to report the 'sale' of your share at FMV on your 2017 tax return. Where does your mother and your other sister live (not the one who has the condo)?

With respect to the 3 tenants, it would seem to me that the rental income should be enough to support qualification for the mortgage, depending on the LTV (loan to value) of the property. If the property is worth $500k or so, the LTV is circa 30%, plenty low enough for a lender.


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## Solidify (May 8, 2017)

The quadplex is my principal residence. I live here with my mother and sister. My other sister lives in the condo. 
My municipal tax bill evaluates our quadplex at $631,100.00
We reside in Quebec.


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## Mortgage u/w (Feb 6, 2014)

If your family does not qualify without you, then you have very little choice since the objective is to get off the mortgage. If it was to get you off title, then that would have been easier since you would remain on the loan as a guarantor which the bank would accept.

By getting off title, you will trigger a sale and you will have to pay capital gains on your portion but only on the percentage that you and your family declare as rental. So it you occupy 33% as owner occupied and 67% is rented, then you pay capital gains on the 67%. If you recently inherited the property and the value has not changed, then you can avoid the capital gain since you price acquired is the same as its worth today.


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## Solidify (May 8, 2017)

How do I calculate what the capital gains tax would cost us, let's say my family would qualify without me?


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## AltaRed (Jun 8, 2009)

Mortgage u/w said:


> By getting off title, you will trigger a sale and you will have to pay capital gains on your portion but only on the percentage that you and your family declare as rental. So it you occupy 33% as owner occupied and 67% is rented, then you pay capital gains on the 67%. If you recently inherited the property and the value has not changed, then you can avoid the capital gain since you price acquired is the same as its worth today.


I was in error above. My thought process was that the OP was selling his unit, but if all 4 units are in one title as it is implied to be given one municipal assessment (or perhaps have individual titles with a strata arrangement) and each is tenants-in-common 4 ways, then the OP is also selling his portion of the investment units. The OP will need to have a formal appraisal done to establish FMV (municipal property assessments don't cut it, nor does a realtor's market assessment). The OP is also going to have to find out how the property was transferred and when, if any, cap gains taxes were paid by the father at time of transfer (parent's separation). 

It is only the OP that will have cap gains tax. The rest of the family is not triggering a sale. At worst, the mother is purchasing from the OP at FMV. The OP needs to assess his own tax situation and recognize that his taxable income will increase by 50% of the difference in FMV and ACB of his portion of the investment rental properties. The OP really has not provided specifics on how title is constructed other than as tenants-in-common.


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## Solidify (May 8, 2017)

My mother agreed to pay the capital gains tax at the time of the transfer from my father. I believe she wrote him a cheque of about $11,000.00



> The OP needs to assess his own tax situation and recognize that his taxable income will increase by 50% of the difference in FMV and ACB of his portion of the investment rental properties.


Understood, but again, can someone help me gather an estimate working off the municipality's evaluation?



> The OP really has not provided specifics on how title is constructed other than as tenants-in-common.


What else would you need to know?


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## Solidify (May 8, 2017)

I just realized something. I am the owner and occupy the main dwelling. But the unit we occupy takes the entire 2nd floor and about 70% of the 1st floor. With that being said, wouldn't more than 33% be considered as "owned" and therefore less subjected to the capital gains tax?


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## twa2w (Mar 5, 2016)

Your original post was not clear as to whether the title is tenants in common with 50% mom and 16 2/3% for each of the siblings or
Tenants in common with 50% to the mom and 50% jointly to the OP and sisters.


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## AltaRed (Jun 8, 2009)

If the cap gains tax was paid at time of transfer, you at least have the ACB. Let's say it was $400k for the 4 units. Let's say FMV is $600k. That is an overall gain of $200k, or $50k/unit if all 4 units are worth the same value, and your share is 1/6 of that. So cap gains on the investment properties is 3/4 of $200k or $150k (for 3 units) and your share is $25k (1/6 of $150k). Since cap gains is taxed (so far) at 50% inclusion rate, your taxable income would be 50% of $25k or $12.5k and that is added to your income for the year. 

I only bring up the question of title construction because it could be 2 ways: 1) one title for all 4 units because the building was always intended to be rental properties, or 2) each of the 4 units could have their own title so that individual units could be sold individually some time (but would need all the associate covenants that come with a strata such as third party wall agreements, strata bylaws, etc.).

Added: Ignore all I have written.... Post #11 throws a wrench in the gears. The units are not equal.

Added2: Twa2w has a point. How is the title for the 3 siblings constructed?


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## Solidify (May 8, 2017)

twa2w said:


> Your original post was not clear as to whether the title is tenants in common with 50% mom and 16 2/3% for each of the siblings or
> Tenants in common with 50% to the mom and 50% jointly to the OP and sisters.


Sorry. To clarify, title is tenants in common with 50% mom and 16 2/3% for each of the siblings


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## AltaRed (Jun 8, 2009)

Solidify said:


> Sorry. To clarify, title is tenants in common with 50% mom and 16 2/3% for each of the siblings


And the whole building (all 4 units) are on one title I assume, i.e. designed to be a rental apartment building?


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## Solidify (May 8, 2017)

AltaRed said:


> And the whole building (all 4 units) are on one title I assume, i.e. designed to be a rental apartment building?


Yes, exactly.


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## Solidify (May 8, 2017)

Since I don't have a formal appraisal, let's work off the city evaluation, for argument's sake.

The year my father transferred his title to his children (us), the quadplex was evaluated by our city at $579,500.00, and during that same transaction, the capital gains was triggered and paid in the amount of $11,400.00
In 2017, our city has evaluated our quadplex at $631,100.00

How do I calculate the capital gains tax that would need to be paid if we sold the home for $631,100.00 tomorrow, or if I wanted to get my name off the mortgage, assuming it would be the same amount?


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## AltaRed (Jun 8, 2009)

Until we know the proportion of the building that was used for a principal residence, we cannot answer that question. I provided an example in post #13 above for 'equal ' units.

Added: What percent of the total square footage is your principal residence?


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## Solidify (May 8, 2017)

AltaRed said:


> Until we know the proportion of the building that was used for a principal residence, we cannot answer that question. I provided an example in post #13 above for 'equal ' units.
> 
> Added: What percent of the total square footage is your principal residence?


I can safely say that my principal residence occupies 60% of the entire quadplex.


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## AltaRed (Jun 8, 2009)

Solidify said:


> I can safely say that my principal residence occupies 60% of the entire quadplex.


if so, then using your specific numbers for ACB and FMV (for illustration purposes), cap gain on a 100% basis would be $51,600 and 40% of that is attributable to the 3 rental suites = $20,640 for taxable cap gain. Your share is 20640/6 = $3440 and at 50% inclusion rate, taxable cap gain to you is $1720. Add that to your taxable income and multiply by your MTR to get actual taxes to be paid. It won't be much.....


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## Mortgage u/w (Feb 6, 2014)

Solidify said:


> I can safely say that my principal residence occupies 60% of the entire quadplex.


The occupancy percentage must be equal to what you declared on your income taxes. If your quad is 2 floors with a basement where you occupy only the main floor, then your at 33% occupancy. If you occupy a portion of the basement as well and/or have garages, then you can increase your percentage. Be careful what you use since it must be consistent with what you have used on your taxes.

The $11k your mom wrote to your dad.....I think your mistaking this amount with the amount your mom owed him to buy out his share. The capital gain is calculated via income taxes and paid directly to the tax man.

I strongly suggest speaking with your accountant as well as a notary since it gets very complicated when doing these types of modifications. They will be able to tell you exactly what to expect in terms of costs since they can trace back the history of what was already done. You will know exactly what to expect and how it affects your whole family, now and in the future. There are too many variables that unfortunately, you will not be able to get all the answers to here.


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## Solidify (May 8, 2017)

So just so I understand correctly, capital gains tax is only considering the gain in capital between the moment someone acquires their share and the moment they sell it? That means that if my parents initially purchased the home together in 2001 for $319,000.00 and my mother would sell her 50% share tomorrow, she would be taxed on the difference in capital gains between 2001 and 2017, much more than what my father's capital gains tax was (2001 to 2011), is that right?


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## Solidify (May 8, 2017)

Mortgage u/w said:


> The occupancy percentage must be equal to what you declared on your income taxes. If your quad is 2 floors with a basement where you occupy only the main floor, then your at 33% occupancy. If you occupy a portion of the basement as well and/or have garages, then you can increase your percentage. Be careful what you use since it must be consistent with what you have used on your taxes.
> 
> The $11k your mom wrote to your dad.....I think your mistaking this amount with the amount your mom owed him to buy out his share. The capital gain is calculated via income taxes and paid directly to the tax man.
> 
> I strongly suggest speaking with your accountant as well as a notary since it gets very complicated when doing these types of modifications. They will be able to tell you exactly what to expect in terms of costs since they can trace back the history of what was already done. You will know exactly what to expect and how it affects your whole family, now and in the future. There are too many variables that unfortunately, you will not be able to get all the answers to here.


The occupancy percentages I provided were merely for illustration purposes. I understand the importance of reporting them as they were done on our income taxes. 
The building is three floors. The top floor is entirely split between two tenants. The middle floor is entirely ours. The basement includes one small 3 1/2 apartment but the rest is ours, which includes a second kitchen, playroom and double garage; that's why I said we safely occupy 70-80% of the basement floor, for argument's sake.

The $11,000.00 my mother wrote to my father was indeed to pay his capital gains tax for him. I confirmed with her. My father's accountant insisted that since my father was relinquishing his share to us, the least my mother could do is compensate him for what he would be charged in capital gains tax. I'm sure my father paid it himself, and my mother simply wrote him the cheque to make-up for it. I don't believe she directly paid it for him, if that's what you're thinking.

I understand, I just wanted an idea.


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## AltaRed (Jun 8, 2009)

Solidify said:


> So just so I understand correctly, capital gains tax is only considering the gain in capital between the moment someone acquires their share and the moment they sell it? That means that if my parents initially purchased the home together in 2001 for $319,000.00 and my mother would sell her 50% share tomorrow, she would be taxed on the difference in capital gains between 2001 and 2017, much more than what my father's capital gains tax was (2001 to 2011), is that right?


It depends on how your mother acquired her share(s). You are saying now that your parents bought this property jointly in 2001 (assuming 50/50 joint title). And yet you say, your father transferred his share to the 3 children with mother retaining a 50% share. It means your mother had nothing to do with anyone's share of the transaction other than a title change. And yet she paid your father's share of capital gains taxes. I don't see how this storyline makes sense. I can't tell you what is the ACB of your mother's share of the property....whether it is 50% of the $319k or is 50% of the value at time of separation and transfer. The tax accountant needs to tell you how this transaction occurred and what was declared to CRA.

Remember that IF you 'sell' your share to your mother, her ownership goes up to 66.6% and her ACB will include the cost of her original share plus the share she bought from you at FMV.


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## Mortgage u/w (Feb 6, 2014)

Solidify said:


> So just so I understand correctly, capital gains tax is only considering the gain in capital between the moment someone acquires their share and the moment they sell it? That means that if my parents initially purchased the home together in 2001 for $319,000.00 and my mother would sell her 50% share tomorrow, she would be taxed on the difference in capital gains between 2001 and 2017, much more than what my father's capital gains tax was (2001 to 2011), is that right?


Every time you make a change to the ownership of a rental property, it is considered a sale and a capital gain is triggered. To answer your question, the short answer is, "yes". Since your mom and dad owned the property together in 2001 and your dad 'sold' his portion to your mom in 2017 at FMV, your dad paid a capital gain for his share. If you trigger another sale to remove yourself, you incur the capital gain for your portion from when you acquired it to when you get removed. And the day your mom's name is removed off title, then you will need to go back through all the years and calculate her portion of capital gain against the original purchase price and changes in ownership percentages. Again, only the rental portion is affected, not the owner-occupied portion. And your sisters is the same drill.


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## Solidify (May 8, 2017)

My mother paid my father back "off the books." I shouldn't even have mentioned that, it's just confusing people more than anything.
I'm pretty sure the ACB of my mother's share of the property is 50% of the $319,00.00

What if I were to "gift" my share to my mother and not ask anything in return. Does her acquiring new shares trigger her to pay a capital gains tax?
Or what if I gift it to one of my sibling? Would that be smarter since they'd pay less of a capital gains tax that my mother would if she inherited my share?


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## Solidify (May 8, 2017)

Mortgage u/w said:


> Since your mom and dad owned the property together in 2001 and your dad 'sold' his portion to your mom in 2017 at FMV, your dad paid a capital gain for his share.


My father did not 'sell' his portion to my mother. He transferred his shares to us, his three children. And this transfer took place in 2011, not 2017.


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## AltaRed (Jun 8, 2009)

What is confusing here is 'mother' paid the cap gains tax bill on the father's investment share of the property that went in title to the 3 siblings. It would have helped to have a much clearer picture from the 'get go' of how title was distributed and by whom. In any event, it would appear mother's share of the property has never changed since 2001 and hence her ACB on her investment share would be based on the 2001 purchase value of $319k.

To the OP, you can gift all you want to your mother or siblings (for whatever value you want) BUT cap gains is still calculated on FMW of the property and you have a cap gains bill to pay for your share of the property you sell. The seller has the cap gains responsibility. The amount is small for your investment share of the property (based on investment percentage of your 6.6%). I repeat - you need to recognize you will have cap gains taxes owing.


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## Solidify (May 8, 2017)

My apologies, I could have been clearer.

In any case: 



> The seller has the cap gains responsibility.


Does this mean that if I sell or gift my share to either my mother or sisters, I am the only one paying for my capital gains?

Because someone else said:


> Every time you make a change to the ownership of a rental property, it is considered a sale and a capital gain is triggered.


So from my understanding, whether I gift or sell my share to someone, the seller (myself) is not the only one that would need to pay capital gains; the person that acquires the new share(s) would also need to pay capital gains on that new ownership. Am I getting that right?


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## Mortgage u/w (Feb 6, 2014)

Solidify said:


> My mother paid my father back "off the books." I shouldn't even have mentioned that, it's just confusing people more than anything.
> I'm pretty sure the ACB of my mother's share of the property is 50% of the $319,00.00
> 
> What if I were to "gift" my share to my mother and not ask anything in return. Does her acquiring new shares trigger her to pay a capital gains tax?
> Or what if I gift it to one of my sibling? Would that be smarter since they'd pay less of a capital gains tax that my mother would if she inherited my share?


As mentioned earlier, I use the word "sell" because we understood that it was simply transferred - but in the eyes of the law, its a sale. A gift is fantastic, but again, the tax man will come looking for his money. 
In QC, we have what we dubbed as the "welcome tax" which is essentially a mutation tax. Depending how the "transfer" was done to your mom, she may have paid that too (or at least a portion). It may be triggered again once you remove yourself from title. Its a shitty tax but there none-the-less.


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## Mortgage u/w (Feb 6, 2014)

Solidify said:


> So from my understanding, whether I gift or sell my share to someone, the seller (myself) is not the only one that would need to pay capital gains; the person that acquires the new share(s) would also need to pay capital gains on that new ownership. Am I getting that right?


Only the seller pays capital gains. The buyer will pay them whenever they sell.


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## Solidify (May 8, 2017)

Mortgage u/w said:


> Only the seller pays capital gains. The buyer will pay them whenever they sell.


How sure are you of this? Can anyone confirm with documentation?


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## Mortgage u/w (Feb 6, 2014)

Solidify said:


> How sure are you of this? Can anyone confirm with documentation?


You can research the tax act or consult CRA website if you want. 

As a buyer, I would be concerned with the mutation tax as I mentioned earlier.


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## AltaRed (Jun 8, 2009)

Solidify said:


> How sure are you of this? Can anyone confirm with documentation?


Go to the CRA Capital Gains guide and read to your heart's content. There are many capital gains threads on this forum discussing real estate. 

Repeat - it is only the seller that pays cap gains tax. in this case, yourself. Your siblings and mother are not selling anything....even if the tenants-in-common title changes to mother 66.6% and each of the sisters 16.6% each. Your mother will have a new ACB though....consisting of the cost of her original share plus the cost of the share you 'sell' her (at FMV). 

Which is why you also need a formal appraisal done to establish value. This is not a plain vanilla property arrangement so CRA may take interest in the specifics when you report it on your 2017 income tax return, and as I said earlier, they are not inclined to accept municipal property assesssments nor realtor''s market asseessments. They can, and could, establish their own FMV....so don't leave it to CRA to make value decisions.


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## Solidify (May 8, 2017)

OK, will do. You guys have answered all of my questions, thanks.


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