Canada capital gain tax when moving into a rental house
QUESTION:
I have 2 properties.
a)townhouse as principle residence for 7 yrs
b)rental condo - 1 yr old
Tenants moved in Aug. & having difficulties finding right tenants due to strata bylaws restricting families with kids under 18 yrs old.
We have no immediate intention of selling either property.
If we decide to rent a) since it is easier to rent and move to b) making it as principle residence, will there be any capital gain tax on b) when we move in,
or only when we sell the property.
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david ingram replies:
When you move in to a rental, there is a change of use and you trigger a capital gains. Any gain realized in the year rented would be reported on schedule 3 and line 127.. The good news is that you can elect to defer the tax by claiming a deferral on line 256 under section 45(3) of the tax act.
This older Q & A may help.
My question is: Canadian-specific
QUESTION: We in the process of purchasing a house in Penticton and will rent it out, retire (in about 4 years)and move into it ourselves. If we live there for 2 or more years are we liable for capital gains for the period we collected rental income? What type of home insurance is best for a rental property? What are your thoughts re the real estate market in the Okanagan in the next five years - steady growth or a slump after "2010"?
Many thanks, david ingram replies:
You are liable for capital gains income tax for the period you rented it out. In fact "When you move into the house", you will trigger a capital gains tax because of a change in use from a business use to a personal use.
The good news is that you can make an election under Section 45(3) of the income tax act to defer paying the tax until you actually sell the property. To make the calculation, fill in schedule 3 and put the taxable profit on line 127 of your T1. then deduct the same amount on line 256 under Section 45(3).
I think the Okanagan AND the lower mainland markets are already overheated and think the prognosis is for little or no growth for the next five years but I have been wrong before.
That does not mean you should not buy because if I am wrong, it will cost so much more to buy six or seven years from now that you will be cursing me all the way to the mortgage broker. If you buy and it goes down a bit, it does not matter because you are buying it to live in and that gives you the property in the future at today's price which is historically lower.
david ingram
I have 2 properties.
a)townhouse as principle residence for 7 yrs
b)rental condo - 1 yr old
Tenants moved in Aug. & having difficulties finding right tenants due to strata bylaws restricting families with kids under 18 yrs old.
We have no immediate intention of selling either property.
If we decide to rent a) since it is easier to rent and move to b) making it as principle residence, will there be any capital gain tax on b) when we move in,
or only when we sell the property.
------------------------------------
david ingram replies:
When you move in to a rental, there is a change of use and you trigger a capital gains. Any gain realized in the year rented would be reported on schedule 3 and line 127.. The good news is that you can elect to defer the tax by claiming a deferral on line 256 under section 45(3) of the tax act.
This older Q & A may help.
My question is: Canadian-specific
QUESTION: We in the process of purchasing a house in Penticton and will rent it out, retire (in about 4 years)and move into it ourselves. If we live there for 2 or more years are we liable for capital gains for the period we collected rental income? What type of home insurance is best for a rental property? What are your thoughts re the real estate market in the Okanagan in the next five years - steady growth or a slump after "2010"?
Many thanks, david ingram replies:
You are liable for capital gains income tax for the period you rented it out. In fact "When you move into the house", you will trigger a capital gains tax because of a change in use from a business use to a personal use.
The good news is that you can make an election under Section 45(3) of the income tax act to defer paying the tax until you actually sell the property. To make the calculation, fill in schedule 3 and put the taxable profit on line 127 of your T1. then deduct the same amount on line 256 under Section 45(3).
I think the Okanagan AND the lower mainland markets are already overheated and think the prognosis is for little or no growth for the next five years but I have been wrong before.
That does not mean you should not buy because if I am wrong, it will cost so much more to buy six or seven years from now that you will be cursing me all the way to the mortgage broker. If you buy and it goes down a bit, it does not matter because you are buying it to live in and that gives you the property in the future at today's price which is historically lower.
david ingram
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