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.
------------------------------------
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
-----------------------------------------------------------------------
--
However, I regularly
search for the words"PAYING CUSTOMER" and always answer them first if they did
not get spammed out. As an example, as I write this on Sept 2, 2007 (the day
before I turn 65), since June 16th (78 days), my 'spammed out' box has 24,417
unread messages, my deleted box has 8063 I have actually looked at and deleted
and I answerd 576 email questions for clients and strangers. I have also
put aside 472 messages that I am maybe going to try and answer because they look
interesting. -expert US Canada Canadian American Mexican Income Tax
help
Calls welcomed from 10 AM to 9 PM 7 days a week Vancouver (LA) time - (please do not fax or phone outside of those hours as this is a home office) expert US Canada Canadian American Mexican Income Tax help.
$1,600 would be for two people with income from two countries
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
-----------------------------------------------------------------------
--
It is very unlikely that blind or unexpected email to me will
be answered. I receive anywhere from 100 to 700 unsolicited emails a
day and usually answer anywhere from 2 to 20 if they are not from existing
clients. Existing clients are advised to put their 'name and PAYING
CUSTOMER' in the subject and get answered first. I also refuse to be a
slave to email and do not look at it every day and have never ever looked at it
when i am out of town. expert US Canada Canadian American Mexican Income Tax
help
Therefore, if an email is not answered in 24 to 36 hours, it
is lost in space. You can try and resend it but if important, you will
have to phone to make an appointment. Gillian Bryan generally accepts
appointment requests for me between 10:30 AM and 4:00 PM Monday to Friday
VANCOUVER (Seattle, Portland, Los Angeles) time at (604) 980-0321. expert US Canada Canadian American Mexican Income
Tax help.
David Ingram's US / Canada Services
US / Canada / Mexico tax, Immigration and working Visa Specialists
US / Canada Real Estate Specialists
My Home office is at:
David Ingram's US / Canada Services
US / Canada / Mexico tax, Immigration and working Visa Specialists
US / Canada Real Estate Specialists
My Home office is at:
4466 Prospect Road
North Vancouver, BC, CANADA, V7N 3L7
Cell (604) 657-8451 -
(604) 980-0321 Fax (604) 980-0325
North Vancouver, BC, CANADA, V7N 3L7
Cell (604) 657-8451 -
(604) 980-0321 Fax (604) 980-0325
Calls welcomed from 10 AM to 9 PM 7 days a week Vancouver (LA) time - (please do not fax or phone outside of those hours as this is a home office) expert US Canada Canadian American Mexican Income Tax help.
Disclaimer: This question has been answered without detailed
information or consultation and is to be regarded only as general
comment. Nothing in this message is or should be construed as advice
in any particular circumstances. No contract exists between the reader and the
author and any and all non-contractual duties are expressly denied. All
readers should obtain formal advice from a competent and
appropriately qualified legal practitioner or tax specialist
for expert help, assistance, preparation,
or consultation in connection with personal or
business affairs such as at www.centa.com. If you forward this message, this disclaimer must be included."
expert US Canada Canadian
American Mexican Income Tax
help.
David Ingram gives expert income
tax & immigration help to non-resident Americans & Canadians from
New York to California to Mexico family,
estate, income trust trusts Cross border, dual citizen - out of
country investments are all handled with competence &
authority.
Phone consultations are $400 for 15
minutes to 50 minutes (professional hour). Please note that GST is added if
product remains in Canada or is to be returned to Canada or a phone consultation
is in Canada. expert US Canada Canadian American Mexican Income
Tax help.
This is not intended to be definitive but in
general I am quoting $800 to $2,800 for a dual country tax return.
$800 would be one T4 slip one W2 slip one or two
interest slips and you lived in one country only - no self employment or rentals
or capital gains - you did not move into or out of the country in this
year.
$1,000 would be the same with one rental
$1,200 would be the same with one business no
rental
$1,200 would be the minimum with a move in or out
of the country. These are complicated because of the back and forth foreign tax
credits. - The IRS says a foreign tax credit takes 1 hour and 53
minutes.
$1,500 would be the minimum with a rental or two in
the country you do not live in or a rental and a business and foreign tax
credits no move in or out
$1,600 would be for two people with income from two countries
$2,800 would be all of the above and you moved in
and out of the country.
This is just a guideline for US / Canadian
returns
We will still prepare Canadian only (lives in
Canada, no US connection period) with two or three slips and no capital
gains, etc. for $150.00 up.
With a Rental for $350
A Business for $350 - Rental and business likely
$450
And an American only (lives in the US with no
Canadian income or filing period) with about the same things in the same range
with a little bit more if there is a state return.
Moving in or out of the country or part year
earnings in the US will ALWAYS be $800 and up.
TDF 90-22.1 forms are $50 for the first and $25.00
each after that when part of a tax return.
8891 forms are generally $50.00 to $100.00
each.
18 RRSPs would be $900.00 - (maybe amalgamate a
couple)
Capital gains *sales) are likely $50.00 for
the first and $20.00 each after that.
Just a guideline not etched in
stone.
This from "ask an income trusts tax and immigration expert"
from www.centa.com or www.jurock.com or www.featureweb.com. David Ingram deals on a daily
basis with expatriate tax returns with multi jurisdictional cross and
trans border expatriate problems for the United States, Canada, Mexico,
Great Britain, United Kingdom, Kuwait, Dubai, Saudi Arabia, Thailand,
Indonesia, Japan, China, New Zealand, France, Germany, Spain, Italy, Russia,
Georgia, Brazil, Peru, Ecuador, Bolivia, Scotland, Ireland, Hawaii, Florida,
Montana, Morocco, Israel, Iraq, Iran, India, Pakistan, Afghanistan, Mali,
Bangkok, Greenland, Iceland, Cuba, Bahamas, Bermuda, Barbados, St Vincent,
Grenada,, Virgin Islands, US, UK, GB, and any of the 43 states with state tax
returns, etc. Rockwall, Dallas, San Antonio Houston, Denmark, Finland,
Sweden Norway Bulgaria Croatia Income Tax and Immigration Tips, Income Tax
Immigration Wizard Antarctica
Rwanda Guru Consultant Specialist Section 216(4) 216(1) NR6
NR-6 NR 6 Non-Resident Real Estate tax specialist expert
preparer expatriate anti money laundering money seasoning
FINTRAC E677 E667 105 106 TDF-90 Reporting $10,000 cross border
transactions Grand Cayman Aruba Zimbabwe South Africa Namibia help USA US Income
Tax Convention. expert US Canada Canadian American Mexican Income
Tax help.
David Ingram
expert income tax and immigration help and preparation of US Canada Mexico non-resident and cross border returns
with rental dividend wages self-employed and royalty foreign tax credits family
estate trust trusts income tax convention
treaty
New York, Boston, Sacramento, Minneapolis, Salem,
Wheeling, Philadelphia, Pittsburgh, Atlanta, Pensacola, Miami, St Petersburg,
Naples, Fort Myers, Cape Coral, Orlando, Atlanta, Arlington, Washington, Hudson,
Green Bay, Minot, Portland, Seattle, St John, St John's, Fredericton, Quebec,
Moncton, Truro, Atlanta, Charleston, San Francisco, Los Angeles, San Diego,
Sacramento, Taos, Grand Canyon, Reno, Las Vegas, Phoenix, Sun City, Tulsa,
Monteray, Carmel, Morgantown, Bemidji, Sandpointe, Pocatello, Bellingham,
Custer, Grand Forks, Lead, Rapid City, Mitchell, Kansas City, Lawrence, Houston,
Albany, Framingham, Cambridge, London, Paris, Prince George, Prince Rupert,
Whitehorse, Anchorage, Fairbanks, Frankfurt, The Hague, Lisbon, Madrid, Atlanta,
Myrtle Beach, Key West, Cape Coral, Fort Meyers, Berlin,
Hamburg, Warsaw, Auckland, Wellington, Honolulu, Maui, Kuwait, Molokai,
Beijing, Shanghai, Tokyo, Manilla, Kent, Winnipeg, Saskatoon, Regina, Red Deer,
Olds, Medicine Hat, Lethbridge, Moose Jaw, Brandon, Portage La Prairie,
Davidson, Craik, Edmonton, Calgary, Victoria, Vancouver, Burnaby, Surrey,
Edinburgh, Dublin, Belfast, Glasgow, Copenhagen, Oslo, Munich, Sydney, Nanaimo,
Brisbane, Melbourne, Darwin, Perth, Athens, Rome, Berne, Zurich, Kyoto, Nanking,
Rio De Janeiro, Brasilia, Colombo, Buenos Aries, Squamish, Churchill, Lima,
Santiago, Abbotsford, Cologne, Yorkshire, Hope, Penticton, Kelowna, Vernon, Fort
MacLeod, Deer Lodge, Springfield, St Louis, Centralia, Bradford, Stratford on
Avon, Niagara Falls, Atlin, Fort Nelson, Fort St James, Red Deer, Drumheller,
Fortune, Red Bank, Marystown, Cape Spears, Truro, Charlottetown, Summerside,
Niagara Falls, income trust, Income Tax Treaty Convention. - expert US Canada Canadian
American Mexican Income Tax
help.
International non-resident cross
border expert income tax & immigration help estate family trust assistance
expert preparation & immigration consultant david ingram, income
trusts experts on rentals mutual funds RRSP RESP IRA 401(K) & divorce
preparer preparers consultants Income Tax Convention Treaty.
expert US Canada Canadian American Mexican Income
Tax help.
Be ALERT, the world needs more "lerts".
expert US Canada Canadian
American Mexican Income Tax
help. -
expert us canada canadian Mexico income tax
help
No virus found in this incoming message.
Checked by AVG Free Edition.
Version: 7.5.485 / Virus Database: 269.13.5/988 - Release Date: 04/09/2007 9:14 AM
What's Related