Capital Gains & CRA Appraisals
Professional Real Estate Valuations for Capital Gains and Tax Purposes
When real estate is sold, inherited, transferred or changes use, determining its fair market value as of a particular date can become important for tax purposes.
The challenge is that the value required may not be what the property is worth today. In many situations, the relevant date occurred months or even years ago.
Cade Appraisals Inc. provides independent real estate appraisals for property owners, investors, estates, accountants, lawyers and other authorized clients who require a well-supported opinion of property value for capital gains and CRA-related purposes.
Our role is to determine the market value of the real estate as of the required effective date. Your accountant or tax professional determines how that value should be reported and treated for tax purposes.
What Is a Capital Gains Appraisal?
A capital gains appraisal is a professional real estate valuation prepared to establish the market value of a property as of a specific date for a tax-related purpose.
This may involve determining the property's current value, but frequently it requires establishing what the property was worth at some point in the past.
A professional appraisal provides a documented opinion of value supported by property information, market research, comparable sales and recognized valuation methodology.
Capital gains and CRA-related appraisal assignments may arise in connection with:
Rental and investment properties
Inherited real estate
Cottages and recreational properties
Changes in property use
Property transfers
Commercial real estate
Multi-residential properties
Farms and rural properties
Vacant land
Other real estate requiring a historical fair market value
The specific tax treatment and appropriate valuation date should be confirmed with your accountant or tax professional before the appraisal is completed.
Why Is Fair Market Value Important?
Fair market value can play an important role when determining tax consequences associated with real estate.
The CRA explains that capital gains generally involve the difference between proceeds of disposition and the property's adjusted cost base, together with applicable outlays and expenses. Different rules can apply depending on the property and circumstances.
From an appraisal perspective, the important question is often:
What was this property worth on the required date?
That is the question the appraiser is retained to answer.
Capital Gains Appraisals for
Rental & Investment Properties
Rental properties are one of the most common situations in which a reliable real estate valuation may be needed.
A property may have been purchased years ago and increased substantially in value. It may have originally been a principal residence before becoming a rental property, or a rental property may later become the owner's residence.
Depending on the circumstances, an accountant may require the property's fair market value as of a particular date.
CRA guidance states that when all or part of a principal residence changes to a rental or business use, or vice versa, the owner may be considered to have disposed of and immediately reacquired the property at fair market value, although elections and other rules can affect the tax treatment.
An appraisal can help establish that historical market value.
Change-of-Use Property Appraisals
A change in the use of a property is another reason an accountant may recommend obtaining a professional appraisal.
For example:
A principal residence becomes a rental property.
A rental property becomes a principal residence.
Part of a residence begins being used to earn income.
The use of an investment property changes.
CRA identifies certain changes in use as circumstances that can result in a deemed disposition at fair market value. Because exceptions and elections can apply, the tax consequences should always be confirmed with a qualified tax professional.
If a fair market value is required as of the date the property's use changed, a professional appraisal can provide an independent and well-supported valuation.
Appraisals for Inherited Real Estate
Inherited real estate can also create a need for a reliable historical property value.
CRA states that, subject to exceptions such as certain transfers to a surviving spouse or common-law partner, capital property owned by a person at death may be deemed disposed of immediately before death at fair market value.
Real estate can include a family home, cottage, rental property, farm, commercial building or vacant land.
When a property is subsequently retained or sold by an estate or beneficiary, the value established at an earlier date may become important to the estate's tax professionals.
The appraiser's responsibility is to provide the required real estate valuation. The estate's accountant or lawyer should determine the applicable tax treatment.
Cottage & Recreational Property Appraisals
Cottages are another area where historical valuations can become particularly important.
A cottage may have been owned by the same family for decades, during which time waterfront values may have changed considerably.
Valuing these properties can also be more complex than valuing a conventional suburban home.
Relevant characteristics can include:
Water frontage
Water access
Shoreline characteristics
Views
Lot size and configuration
Privacy
Seasonal versus year-round use
Dwelling quality and condition
Outbuildings
Location
Recent comparable waterfront sales
An appraisal analyzes the market evidence relevant to the property and the required effective date.
What Is a Retrospective Capital Gains Appraisal?
Sometimes the date your accountant needs is several years in the past.
This is where a retrospective appraisal becomes important.
A retrospective appraisal develops an opinion of a property's market value as of a specified
historical date.
Instead of simply examining today's listings and sales, the appraiser researches the market that existed around the historical effective date.
Depending on the assignment, this may include analysis of:
Historical comparable sales
Historical listings
Market trends
Neighbourhood conditions
Property characteristics at the time
Land values
Available historical property information
The objective is to understand what the property would have been worth within the market that existed at that time.
What If the Property Has Been Renovated Since the Required Date?
This is an important consideration in historical appraisal work.
Imagine that your accountant needs the property's value as of 2018, but you renovated the entire home in 2023.
Today's condition does not necessarily represent the property that existed on the required valuation date.
The appraiser may need to understand what the property looked like and what improvements existed at the historical date.
Helpful information can include:
Old photographs
Previous MLS listings
Renovation invoices
Building permits
Construction records
Surveys
Floor plans
Previous appraisals
Property tax records
Other reliable historical documentation
The availability and reliability of historical information can affect the scope of the appraisal.
Appraisals for Property Transfers
Property transfers between related parties can also create situations where fair market value becomes important.
CRA states that certain transfers of capital property between people who do not deal at arm's length may be deemed to occur at fair market value, although special rules and exceptions can apply.
Because the tax consequences of property transfers can be complex, speak with your accountant or tax lawyer before completing the transaction.
If they determine that a fair market value appraisal is required, Cade Appraisals Inc. can provide the real estate valuation.
More Than Residential Homes
Capital gains and CRA-related appraisal assignments can involve many different types of real estate.
Depending on the assignment, we provide appraisal services involving:
Residential homes
Condominiums
Cottages and waterfront properties
Rental properties
Multi-residential properties
Commercial properties
Industrial properties
Mixed-use properties
Rural properties
Farms and agricultural properties
Vacant land
Development properties
Unique real estate
Different property types may require different valuation approaches and levels of analysis.
Working With Your Accountant or Tax Professional
This is one of the most important steps when ordering a capital gains appraisal.
Before requesting the appraisal, we recommend confirming with your accountant or tax professional:
The property that needs to be valued
The required effective date
The purpose of the valuation
Whether any particular property interest needs to be valued
Any other information they require from the appraisal
This helps ensure that the appraisal assignment addresses the correct valuation question.
Cade Appraisals Inc. provides the real estate valuation expertise. We do not calculate your capital gains tax or provide tax advice.
Frequently Asked Questions About Capital Gains & CRA Appraisals
Do I need an appraisal for capital gains?
That depends on your individual circumstances. Your accountant or tax professional should determine whether a professional real estate appraisal is appropriate and which valuation date is required.
Can you determine what my property was worth years ago?
Yes. A retrospective appraisal can develop an opinion of market value as of a specified historical date, subject to the availability of sufficient reliable information.
My house used to be my principal residence and is now a rental. Can it be appraised?
Yes. If your tax professional requires the property's fair market value as of the change-of-use date, an appraisal can be completed for that historical effective date. CRA has specific rules concerning changes in use, including possible elections, so your accountant should determine the tax treatment.
Can you appraise an inherited property?
Yes. Inherited homes, cottages, rental properties, farms, commercial properties and other real estate can be appraised.
Can you appraise a cottage for capital gains purposes?
Yes. Waterfront and recreational properties can be appraised, including for historical valuation dates.
What if I renovated the property after the valuation date?
The appraisal may need to consider the property's characteristics as they existed on the required historical date. Historical photographs, listings, permits and renovation records can be particularly useful.
Will you calculate how much capital gains tax I owe?
No. The appraiser provides an opinion of the property's market value. Your accountant or tax professional determines the tax calculation and reporting requirements.
Independent Property Valuations for Capital Gains & CRA Purposes
When a tax matter depends on the value of real estate, having a well-supported property valuation can provide important documentation for you and your professional advisors.
Whether the assignment involves an investment property, inherited home, cottage, change in use, property transfer or another situation requiring a current or historical market value, Cade Appraisals Inc. provides independent real estate appraisal services based on relevant property and market evidence.
Need a Capital Gains or CRA Appraisal?
Contact Cade Appraisals Inc. to discuss the property, purpose of the appraisal and required valuation date.