# Buying house from family



## dogpower (Feb 11, 2013)

Hi

I just started researching upon this matter but I figured it best to ask you guys as well. My parents are willing to sell their house (they own two) to my sister and I for below market value in Vancouver. The house is appraised for a million. The mortgage still needs to be paid off. The second house they are willing to sell to us is not their principal place of residence. 

What kind of questions should I be asking here?

How much of the mortgage still needs to be paid off?
How much are they willing to sell it to us? They said below market value so possibly $800,000
Does capital gains tax factor in when the sale is between family members? And I guess it will be based on fair market value?

Just wondering whats the best way to go at it? I'm guessing seek professional help but I also want to be well informed. I can make a down payment of $85,000 at the moment. My sister only $25,000 but she is married, has her own place in another country, and has a well paying job. 

Thanks and my parents are not planning to sell anytime soon.


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## none (Jan 15, 2013)

Why???

Sell it at market price and split the 200K between you and your sister. THAT'S the deal!


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## Rusty O'Toole (Feb 1, 2012)

They can sell it for any price the chose, or even give it away. Any taxes will be based on the difference between what they paid and what they get, if it is their principal residence the gain may be tax free. They could get their mail directed there for a few months.

You will need to get a new mortgage and pay off the old one. There are ways to get around this if it is inconvenient but, that is the usual way to do it.


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## Guban (Jul 5, 2011)

Rusty O'Toole said:


> They can sell it for any price the chose, or even give it away. Any taxes will be based on the difference between what they paid and what they get, if it is their principal residence the gain may be tax free. They could get their mail directed there for a few months.
> 
> You will need to get a new mortgage and pay off the old one. There are ways to get around this if it is inconvenient but, that is the usual way to do it.


Since this is a non arm's length transaction, the fair market value should be used to calculate the captial gain for parents.

@dogpower. You and your sister need to be careful about this transaction. I believe that If you aquire this house for $800k, this becomes your ACB, and your potential capital gains are based on this. It may not be a factor if it's your principal residence. Otherwise, you may wish to have an additional $200k forgivable loan from your parents. 

Also, what is the residence status of your sister? If she is Canadian, it sounds like she already has a principal residence. If she is not, she faces taxes as a non resident on real Canadian property.

Get some real tax advice.


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## Davis (Nov 11, 2014)

Guban said:


> Since this is a non arm's length transaction, the fair market value should be used to calculate the captial gain for parents.
> Get some real tax advice.


+1! 

CRA says that to qualify as a principal residence, "You, your current or former spouse or common-law partner, or any of your children lived in it at some time during the year." Rusty's comment that "They could get their mail directed there for a few months" is not good tax advice. 
Also, some mortgages are transferable. The bank may be willing to let you assume the mortgage.


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## OhGreatGuru (May 24, 2009)

OP says his parents own 2 houses, and the one they are offering is not their principal residence. They can only have 1 principal residence at a time. 

So capital gains tax owed to CRA will be based on FMV, not the sale price. Colluding with parents to try to evade their tax obligation is unwise.

Would land transfer tax in BC be based on FMV in such a sale?

It is not in the long-term interest of OP and his sister to receive the property at an artificially low value (from the point of view of possible future capital gains).

OP (and his sister) either need:
a) professional advice;or,
b) need to say "Thanks for the thought, Mom & Dad, but just sell it; and if you have more money left over than you think you need after paying the mortgage, taxes, and carrying costs, make us cash gifts."


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## RCB (Jan 11, 2014)

Regarding future capital gains for the purchaser:

I was recently in this position. Purchased house from my father for the outstanding mortgage amount. The difference between that number and FMV was the "gifted equity". I asked my accountant what figure would be used by CRA in the future as the purchase price for capital gains purposes (it's a rental) for my husband and I, and I was told CRA would use the purchase price number (O/S mortgage amount + gifted equity). FWIW


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## Just a Guy (Mar 27, 2012)

I could see how you could actually wind up taxed double on this deal...

Your parents sell under market, CRA demands capital gains based on fair market value, so they pay based on 1 million dollars (loose math says an extra $50k 1M-800k =200k, half tax free, half taxed at 50%)

You buy the house at $800k. Let's say you need to sell right away, and sell at market, you are hit with a capital gain of $200k (and taxed accordingly, another $50k) which your parents already paid, and you have no recourse to recover...

Trying to beat the system will cost you in the end...and that's assuming CRA doesn't find some issue with the transaction and decides you need to pay penalties on it...


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## banjopete (Feb 4, 2014)

Is not being interested an option? I mean, do you need a house? Is buying a house for you a good idea? What kind of buyer/ownership arrangement will you have with your sister if she's putting up 30% of your DP. 

I'd float the idea that your parents sell the place, pay the taxes, kill the mortgage, give you the money, if they're being generous that is. It's kind of the same thing but it gives you way more options, for both you and your sister.


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## CharlesF.Donahue (Jan 7, 2015)

If you want to buy a house for your family, then first you consider the location or environment. You must contact your dealer for any inquiry related to mortgage.


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