My two sisters and I inherited a cottage as well as some land from my parents when they passed, we received the cottage with no mortgage and we've just paid equally (ex taxes, regular up keep, hydro and heating) for the past 20 some years. We would like to keep the cottage in our family and pass it down to my daughter and son, is this ossible to do without having to ay caital gains? If we do have to pay them how would we figure out how much its going to be? I'm really green with this stuff so any help at all would be greatly appreciated.

Thanks

It is unlikely that you have any capital gains to worry about here, but your childrenn might - if/when they decide to sell the property some time in the future.

First, exactly how is the house titled? I assume the three of you own it jointly in some fashion, but specifically is it joint tenancy (with right of survivorship), or is it tenancy in common? It matters - as you have different rights as to how you can pass on your share of the property either as gifts now or as inheritances later. If you have tenancy in common (which I would assume it is, unless you tell us otherwise), then you can pass your 1/3 ownership on to your heirs via your will, so when you die they will then take on your 1/3 ownership interest. At that time if any estate taxes are due, those taxes are based on the total value of your estate, and are paid out of your estate, not by the heirs themselves. There are no capital gains implications if you do this. The tax cost basis of the property for your heirs becomes the fair markt value as of your date of your death.

If you want to gift the property to your childrenn now, then you can simply sign your ownership rights to them. You may have a gift tax issue here, if the value of the property that you gift to either any child exceeds $13K. Assuming your share of the property is worth more than that, you would have to file a gift tax form with the IRS to document this gift, but you wouldn't actually owe any gift taxes unless the value here (along with the values of any other gift tax filings you may have had previously) is in excss of $1M. Again, there are no capital gains issues for you; however, when you gift the property your children will need to know what the cost basis of the property is - which would be the lesser of the current fair maket value or the fair market value when you first inherited the property upon your parents' passing 20 years ago.

Hope this helps. A separate issue you should carfeully think through is how your childrn are going to manage this property together with your sisters - and some day their children. Having a single property owned by so many people can get quite messy, as I'm sure you're aware - especially if some of the joint owners end up moving away and have little or no opportunity to actually use the place. Having financial obligations to pay taxes and maintenance costs on a property you never get to visit can cause lots of friction in the family.

Thanks a lot for the response, its certainly a little clearer now. Just curious if the same things would apply in Canada, obviously that's where I'm from. Also are my other 2 sisters able to hand off their shares as a gift as well? I totally understand what your saying about so many people being involved in a property, that's why the property is hopefully going to be handed down to my duaghter. In your opinion do you see anything that could cause a huge problem in this scenario? Or any reason for a huge expense for me, my sisters or my duaghter?

Again thanks so much for your response, its been a huge help so far.

Hello drake77. My responses were based on an assumption that US tax laws applied. I'm sorry but I do not know how these things work in Canada - specifically the implications regarding taxes that may be owed for a gift like this. Perhaps someone familiar with Canadian gift tax and inheritance laws can respond with reliable information.

As for sharing property - your original post said that you would pass your share to both your children, now you're suggesting to just one (your daughter). I believe the fewer owners the better, to avoid the complications of joint ownership. I would encourage all the joint owners to draft up an agreement as to how the property is to be managed - who pays for maintnence and repair, who decides when a major expense is warranted (replacing the roof, for example), how do they decide how much time each party gets to use the property, what are the rules if one party wants to sell his/her share to the others, etc.