- A spouse owns property before marriage and the title of property is retained only under his name.
- A spouse owns a business that faces a lot of responsibilities. The title of the property may be registered under the name of another spouse for creditor protection purposes.
- In a second marriage, a couple may have shared real estate, so when they die, their personal share belongs to the children from the first marriage.
It is not clear why the rental property is only based on your husband’s name Iuliana. But we can solve many considerations.
Convert primary residence to rental property
When you have a primary residence and change the use of the property, you are considered to be sold at fair market value at the time and immediately re-recognize it at the same value. This may result in capital gains or losses used, which may have tax implications.
If the property has your primary residence in all years of previous ownership, there is no tax required. Converting it to a rental property will therefore determine the adjusted cost basis for future capital gains taxes. That is, unless you filed an election in Section 45 (2) with the Canadian Revenue Agency (CRA) at that time to continue to designate the property as your primary residence for up to four years. You can even submit this election retroactively.
The conditions of this 45 (2) election require that you cannot designate any other real estate as your primary residence, and that you cannot claim any cost of capital allowance (CCA) or depreciation, or depreciation – net rental income reported in your tax return. You must also be still a Canadian resident or considered a resident. The situation you might do is when you move into a house you want to rent, but you keep the previous home as a rental property. It may not be common, but it can happen.
In some cases, if your employer or your spouse or common law partner’s employer wishes you to relocate, you can extend this four-year limit indefinitely.
Sell assets? Read our Capital Income Guide
Capital gains tax when the first spouse dies
When a taxpayer transfers assets to his spouse Iuliana, by default, those assets are transferred on a cost basis of the original adjustment. If this transfer is conducted over a person’s lifetime, any subsequent income, including capital gains, is attributed to the transfer’s spouse. (See my previous column on the tax implications of investing money or assets to your spouse.)
When someone dies, the same transfer can be applied if they leave their assets to their spouse. However, subsequent income cannot be attributed to the first spouse. Subsequent capital gains can be taxed on the spouse of inherited assets. As a result, there may be no capital gains regarding the death of the first spouse, so if your husband leaves the leased property to you, Iuliana, your husband shall not be paid taxes when he dies. Instead, when you sell the property, you will pay all deferred capital gains, otherwise you will be considered as selling it.
The executor of the deceased’s estate may choose to cause the capital gains that result in death for some or all of the deferred capital gains. This can be done if the deceased dies at the beginning of the year with little income, or they have capital losses or other tax credits or tax credits. These may be the reasons for claiming some or all of capital gains through election transfers with transfers of value above the cost basis. The elected value will become the cost basis for inheriting spouses, thereby reducing their future capital gains.
