My question is: US-specific
QUESTION: I have a three unit property. The only property I own. I live in
one of them and rent the other two out. I claim it as owner occupied, principle place of residence when I bought it.
I now want to sell it. Do I need to pay capital gains tax on the
appreciation. I know that any thing over 4-unit is treated as a commencial
property and if it is just a single unit that is my principle place of
residence, I do not have to pay capital gains tax if it is less than $250k.
Please, help a confused man.
David Ingram replies:
I am going to assume you lived in 40% of the triplex and rented out 60%
Therefore, when you rented out the triplex, you have been claiming 60% of the expenses as a deduction on your schedule E.
When you sell the property, 40% of the profit up to $250,000 will be tax free to you.
That answer is true for the USA.
In my opinion, if the triplex was in Canada, the whole triplex should be tax free if you bought the triplex to live in.
The Fedel Saccomano case is a good example. In this case in Waterloo, Ontario, The judge agreed that the whole building fell withinf Section 54(g) of the income tax act which allows a house and 1.22 acres (a house and one/half hectare in metric) to be free of capital gains tax.
You can find out more about Canadian Capital gains Tax by clicking on www.centa.com, goto the Tax Guide Section and click on the Capital Gains Section. There is an excellent 10 year old description of capital gains tax in Canada including its history and several tax cases dealing with everything from works of art to contractors personal houses to triplexes, farms and estates.
Hope this helps and remember that the CEN-TA Group looks after this kind of tax return by mail, fax, or email and telephone.
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