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Hi David
Firstly, thank you for your great advise. It has definitely been of value to me.
I have a rental townhouse that I am wanting to sell in Squamish. I purchased it 6 years ago for $185,000 and lived in it for 5 years. In February 2003 I refinanced it for $210,000 and purchased a house in which I now live. Tenants moved in, in May 2003. I would now like to sell it for $275,000
April 25th 2003 a similar property in the complex sold for $218,000. On May 4th another similar unit sold for $234,000. When calculating capital gains, would having a document from a realtor giving the details of these sales suffice as proof of the value of my property at the time it was rented? Could I just use the details of the $234,000 sale as proof and reduce my capital gain by $16,000?
If I reinvest the proceeds of my sale into another investment property can I defer the capital gains tax till after the sale of the next property? If so how long do I have before I have to reinvest?
Thanks
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david ingram replies:
The relative date in this situation is the value when you bought the second house, not the date it was rented.
It may well have been worth $240,000 or $250,000 or even $210,000 at that time. It depends upon the condition of your unit, what you had done to the inside, whether it was an end unit, closer to parking, further from the playground or how far you live from my sister-in-law.
The relative value was likely fixed with your refinancing at $210,000. The value for the refinanciang is the valuye that makes the most sense to me unless you know it was low.
However, the bad news for you is that the mortgage interest on the extra amount you received to purchase your next house is NOT deductible against the rent your receive from the townhouse because the money was borrowed to buy your personal residence, not buy the rental property.
When you sell the townhouse, take all the money and pay it down on the house you live in. Then, and only then, if you wish to buy another rental, borrow the money agaisnt the house you live in to use for the down payment on the rental.
That way, the down payment loan interest will be deductible as well.
A worthwhile trip for you would be this Thursday Night. Fred Snyder of Cartier Partners and I will be doing a free "mortgage interest as a deduction" seminar at 1764 west 7th in Vancouver at 7 PM. Call (604) 731-8900 to register. It is limited to 15 people or so.
You will be out of the seminar by 9 PM.
Canada does NOT have a rollover provision for capital gains with rental houses.
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Fred Snyder and I are giving a free seminar on making your CANADIAN mortgage interest tax deductible at our new office at 1764 West 7th in Vancouver.
When: Every Thursday Night
Time: 7 to 9 PM
RSVP: phone (604) 731-8900 to reserve (limited to 15 people)
My time is still spent at
108-100 Park Royal South
West Vancouver, BC
(604) 980-0321
david ingram
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Answers to this and other similar questions can be obtained free on Air every Sunday morning.
Every Sunday at 9:00 AM on 600AM in Vancouver, Fred Snyder of Cartier Partners and I will be hosting an INFOMERCIAL but LIVE talk show called "ITS YOUR MONEY"
Those outside of the Lower Mainland will be able to listen on the internet at
www.600AM.com
Local phone calls to (604) 280-0600 - There is a provincial long distance line as well and old shows are archived at the site.
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