Sale of cottage at death

My client passed away in September of 2021. Aside from his principal residence which he has turned over to his son, he also had a cottage. The cottage sold in 2022. The accountant office looking after the estate says I am to record the sale of the cottage, the real estate fees etc on his 2021 personal return. Another says it belongs on the 2022 return for the estate. I am thinking to record the sale in 2021 at the value it would have been then and then have the estate deal with the actual sale and expenses in 2022. The price of real estate here keeps skyrocketing. Between the fall of 2021 and April 8 2022 it likely increased by $20,000.

The answer is it goes on both returns. Upon the death of the taxpayer the property is deemed sold at a value equal to the fair market at that time. On the final return you would report the gain to that point taking into account the ACB. The estate then immediately acquires the property at the sale price reported on the final return and this becomes the estate’s ACB. When the estate ultimately sell the property it will report the gain between the sale price and the newly established ACB less the selling costs.

This is assuming there is no surviving spouse.

When establishing the FMV disposal on the final return it would be reasonable to reduce the estimated value by an estimate of the selling costs.

There is a deemed sale as of the date of death in 2021. This must be reported on the final tax return. I assume the accountant has decided to designate the house as the deceased’s principal residence for all years. It will also have to be reported on a 2022 T3 to reflect the actual sale.

You cannot record the real estate commission and other disbursements when calculating the 2021 deemed capital gain. They hadn’t happened as of the date of death.

Your instincts are correct. Anyways, the real estate commission and legal fees/disbursements on the actual sale in 2022 could likely take care of the growth in the value from September to the date of sale.

“My client passed away in September of 2021. Aside from his principal residence which he has turned over to his son, he also had a cottage. The cottage sold in 2022. The accountant office looking after the estate says I am to record the sale of the cottage, the real estate fees etc on his 2021 personal return. Another says it belongs on the 2022 return for the estate. I am thinking to record the sale in 2021 at the value it would have been then and then have the estate deal with the actual sale and expenses in 2022. The price of real estate here keeps skyrocketing. Between the fall of 2021 and April 8 2022 it likely increased by $20,000.”
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I think perhaps your colloquial description is confusing the facts, or at least the ordering of them.

Your CLIENT is actually not the deceased - your CLIENT is the EXECUTOR of the Estate.
Therefore your Engagement letter is signed by, and your instructions come from, the EXECUTOR.
If the EXECUTOR has hired a professional “accounting office”, it is unclear what sort of engagement it actually is if it does not include responsibility for the T1s and the T3s.

Following from the above, I would start from the exact wording of your Engagement letter, signed by the EXECUTOR.

Recording and reporting sales at random times and at random values is very very far from the wording of the Income Tax Act.

Deceased and Estate tax reporting can be very complex (and often the risk of being sued for doing it wrongly can be high).

There are Deemed dispositions, Actual dispositions, Elections, rules about the possibilities for carry-backs etc etc,

In addition, since " he has turned over to his son" is not a legal description of property disposition, there may very well be another property disposition to also be reported on a T1 and a T3.

In your position, I would do absolutely nothing without a proper and specific signed Engagement letter from the Executor. (And for that matter, also a thorough examination of the Will).
There is no legal basis for taking instructions from anybody else.
Then it should become clear what is being asked of you.

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Sorry, I should pay more attention to my words when I am frustrated and it is late in my neck of the woods.

I am preparing the final return for a man who died in September of 2021. I know I have to claim the deemed disposition of the cottage at time of death. No problems there.

Another accounting firm is doing the estate because I was too swamped and referred the executor to that firm. That firm told me to claim the sale and disposition costs (realtor, lawyer etc.) for the sale of the cottage that took place in April of 2022.

I am only going to report the deemed disposition at death in September 2021 a the FMV at that time because I can’t see how the man who died in 2021 can claim any of the expenses associated with the sale in 2022.

Pat Gamborg

PAT’s OFFICE

1354 Fed Road

Bear River NS B0S 1B0

902-467-3358