Selling an Inherited House in Ontario: Closing Costs and Timing

Selling a parent's home is a sale with extra steps. Beyond the usual listing and closing, you have to show you have legal authority to sell, deal with estate taxes, and think about how the sale is reported for income tax.

This article walks through the costs and timing that tend to matter, and it flags where an estate lawyer or accountant should confirm the details for your situation.

Who has authority to sell

Who has authority to sell an inherited home depends on the will and the estate, so it is worth confirming with a lawyer before you list the property.

Timing matters. The Estate Administration Tax is paid as a deposit when applying for the estate certificate and is due the day it is issued. That application usually comes before the sale, so allow time for it before you commit to a closing date.

Estate Administration Tax on the house

For certificates applied for on or after January 1, 2020, there is no tax if the estate is $50,000 or less. Otherwise the tax is $15 for every $1,000, or part of $1,000, of estate value above $50,000, with the value rounded up to the nearest thousand. For example, a $240,000 estate pays $2,850.

For this tax, Ontario real estate is counted net of encumbrances such as a mortgage, at its appraised value at the date of death, even if it later sells for more or less. Real estate outside Ontario is excluded, and the estate pays, not the personal representative.

Closing costs when you are the seller

Land transfer tax is paid by the buyer. A seller does not pay it on a sale. The seller's costs are commission, HST on commission, legal fees and disbursements, mortgage payout or penalty, and adjustments.

Ontario's HST rate is 13% and applies to taxable services connected with a sale, such as real estate commissions and legal fees, but not to the resale price of a used home. Sales of used owner-occupied homes by individuals are usually exempt from GST/HST, so no HST is charged on the price of a typical resale. There are exceptions, such as a seller who claimed input tax credits on the purchase or improvements.

If the house has a mortgage, paying it off because you sell can trigger a prepayment penalty. The penalty is usually the higher of three months' interest or the interest rate differential. Ask the lender early.

Capital gains, holdbacks and other timing issues

A sale of a principal residence must be reported. From the 2016 tax year, the home is designated on Schedule 3 of the T1 return, and for sales from 2017 Form T2091 is also completed. For a deceased person's estate the form is T1255, and trusts use T1079 with the T3 return. The late designation penalty is the lesser of $8,000 or $100 per complete month from the original due date.

How capital gains and the principal residence exemption apply to a deceased person's home depends on the facts, so an accountant should confirm it.

A buyer's lawyer may ask for a holdback, meaning money kept back from proceeds until certain items are cleared. Whether that is needed, and how much, depends on the estate and the agreement, so ask your lawyer.

• If the home is tenanted, a buyer who takes title steps into the landlord's role, since the Residential Tenancies Act, 2006 defines landlord to include successors in title.
• A buyer who wants the unit for personal use needs an N12 notice, which gives at least 60 days' notice and applies only to properties with no more than three residential units or to a condominium.
• N12 compensation rules change for notices served on or after September 21, 2026, so confirm the current rule with the Landlord and Tenant Board.

What to do next

• Confirm who has authority to sell and whether an estate certificate is needed.
• Get the home's value at the date of death documented, since it affects estate tax.
• Ask the mortgage lender about payout figures and any penalty.
• Talk to an accountant about the final return and Form T1255.
• Ask your lawyer about holdbacks before accepting an offer.
• Keep estate and sale records together for the estate's tax filings.

Frequently asked questions