Do You Have to Pay Income Tax on Selling a House - tax free in Canada if personal residence - up to $250,000 tax free in the US.

Do you have to pay income tax on selling a house?  Would you consider giving me a hand or at least some advice based on your experience?
Would you consider giving me a couple pointers?
I really appreciate your help.

If the house is your principal (personal)  residence in Canada and you are a Canadian resident of any nationality, there is no tax to pay on the sale of your house.

If you are an American citizen anywhere in the world including Canada, France, Australia, etc., , up to $250,000 US per person is tax free providing you lived in the house for 2 out of the last five years.  If you did not live in it for 2 years and sold because of a  job loss,  divorce, medical emergency or job change, the $250,000 tax free is pro-rated by 24 months.  i.e. if you lived in it for  12 months, $125,000 per owner/resident can be tax free,

If it is a rental house, it is taxable in most places including the United States, Canada and Mexico unless it 'was' your principal residence and you lived in it for 2 of the last three years for US purposes and /or for up to 5 years of rental in Canada if you made an election to treat it as your principal residence even though you did not live in it under Section 45(2) of the Canadian Income Tax Act.

>> Hi, 
>> Last year, we rented out our condo in Vancouver.  The
>> plan then was to have the rent cover our mortgage
>> payments for the 12 months that we would be away.  A
>> short term solution.
>> Now, we are planning to be away from BC for a longer
>> period of time (approx. 2 years) and wish to sell the condo
>> in the middle of the year, as we are unable to rent the
>> condo for any longer due to strata council by laws.
>> 1) If we sell the condo when there has been a tenant living
>> in it for 12 months, will we pay capital gains?
>> 2) What are our best options to avoid paying this tax?
>> 3) If capital gains would be owed, for how long would we
>> have to make the unit our principal residence again before
>> we can sell it and not pay GST?
>> Thank you,
david ingram replies:
If you filed a section 45(2) election with your first year's rental, you 
can rent the condo out for up to 4 years (plus 1 in the calculation) 
without incurring capital gains tax if you have not bought another 
residence that you are living in.
 See Below:

My question is: Canadian-specific

QUESTION: Dear Mr. Ingram,
I bought a house in the December of year 2000, lived there till the end of December 2000 (3 weeks) and started to rent it out on January 1, 2001. I filed the election 45(2) to claim the house as my primary residence for years 2001, 2002, 2003 and will do it for 2004.
I do not claim a depreciation for those years.
I want to sell the house now. Do I need to move in house first in order to avoid the payment of the capital gain taxes. For how long I have to stay there to be eligible for not paying the capital gain taxes on sold house if I need to move in.

Thank you in advance for you help,
david ingram replies: 
First I am going to repeat your old question from last July and my answer.
My question is: Canadian-specific

QUESTION: Hi, David!
I would like to know is it possible to use the election under the section 45(2) again if the old house is sold and the new one is bought. Can it be used unlimited number of times by the condition that it is used for each house only once.

Thank you  
David Ingram replies:
Section 45(2) is intended to allow people to try something out.  This means that if you move to a rented condo for a couple of years and rent your house out, you can move back into the house without suffering a capital gains tax under section 45(2).
Since it was passed on June 17, 1972, (32 years ago now) I have never seen it used more than twice by one person.
Does not mean it has not been used more than twice in thirty years, it just means it is unlikely.
There is no numeric restriction but if you are moving in and out of houses, the CRA will treat you as a trader and tax you at full rates.
Now, to answer this question.  Section 45(2) is NOT something you can plan to use.  In other words, your living in the house for three weeks and renting it out and filing a section 45(2) election does NOT make it tax free if you bought the house to rent and not to live in as your personal principal residence.
Your question indicates to me that you are trying to beat the system and did not buy the first house to live in and unless you can show the tax office that you moved every stick of furniture in and really intended to live there, the CRA will not allow it to be sold tax free.
This year, a new policy of the CRA is that they wish form T2091 to be filed with every tax return where a personal house was sold during the year.
If it was your residence and you genuinely intended to live there and were transferred of suddenly got married or could not stand your neighbour or lost your driver's licence or suffered some other disaster that caused you to "HAVE TO" move suddenly, filing section 45(2) will make it tax free provided you did not also own another house that you did live in.   If you did own another house that you actually lived in, claiming the house you have filed the 45(2) election for as tax free, will MAKE THE HOUSE YOU ACTUALLY LIVED IN TAXABLE.
If you have a genuine 45(2) election, you do not need to move back in.  If it is not a genuine 45(2), moving back in will TRIGGER a tax bill as you move in.
You need a consultation with someone who knows the rules before you make a mistake. I am available in person or by phone at a fee of $450.00 minimum for an hour but not until November now.
As many know, I charge this for US / Canada tax an immigration advice as well.  I am not alone though.
If you have a tough US immigration question to ask or one that  I cannot deal with (remember I do Immigration AND tax) Joe Grasmick is the place to go for a telephone consultation.  His fee is $295.00 per HALF hour and you can get hold of him at
I have sent two out of town people to him in the last month where it was obvious to me that the people needed a lawyer as opposed to a consultant..
If you want a free answer for a couple of minutes, remember that you can call my WEB program every Wednesday Night from 6 to 8 or 9 PM at

a call to 1-866-980-0499 will be answered if it is a short question between 6 and 8 PM for sure and to 9 if we are business

This next Wednesday,   my Guest will be Kay Ackles, widow of Bobby Ackles,  who passed  away in July 2008.  Bobby, of course, was the General Manager of the BC lions and former General manager of the XFL's Las Vegas Outlaws before returning to Vancouver where he had started as the Water Boy.  In between, he worked with the Dallas Cowboys, Philadelphia Eagles, Miami Dolphins, and Phoenix Cardinals in the NFL.  Her story as the wife who did all the entertaining, etc., is fascinating.  Their son, Scott Ackles is now the President of the Calgary Stampeders.

Canadian-USA-Global tax help - david ingram expert US CANADA cross border non-resident income tax help and preparation by five tax experts with years of experience with Divorce, Real Estate and Mutual Fund investment matters for Canada, Panama, America


Trackback URL for this entry:

No trackback comments for this entry.