Selling New Condo - Tax free, capital gain or straight income - flipping -
QUESTION: Dear Sir: In 2006 I purchased a condo that would be completed for spring 2008. One month later I bought a used condo for living. Then this summer I bought another condo again, moved in and let the old one be rented. The thing is that next year I can't afford three home, I prefer to sell the brand new one. With a purchase price of 190K and maybe selling of 280K what are the tax implications? More specifically, how is the gain applied against our income? Is it tacked on to the gross income and then taxed according to our tax bracket? If I sell that later, does it make different? Thanks,------------------------------------------
david ingram replies:
This older Q & A might help
My question is: Canadian-specific
QUESTION:
Hi,
If we buy a fixer-upper to renovate and flip without renting it out what are the allowable expenses for deductions?
Thanks
____________________________________________________________________
david ingram replies:
In general anything you spend to do
the fixing is a deduction from the final sale profit. This would
include but is not limited to:
materials, subcontractors, legal,
accounting, real estate commissions, surveyors, appraisals, interest on
the mortgage, interest on a building loan, interest on material loans
(maybe because you used a credit card to buy), truck expenses to get
supplies and transport tools, afvertising, utilities, photography,
landscaping, trash removal, dumping fees, building permits, architects
fees, engineering fees, home inspection fees, insurance, helpers, etc.
Remember that any profit is taxable at
straight income rates on line 135. Flipping or renovating does NOT
create capital gains tax. The following older Questions will explain
that a bit.
______________________________________________________________________
DAVID
Read the full article at <http://tax.centa.com/comment.php?mode=view&cid=8>
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david ingram replies:
In Canada, the purchase and sale of any piece of real estate with or without renovations is considered a sale and subject to straight income tax unless:
1. It was bought for and clearly used as your personal residence and was intended to be used for an indefinite period of time which is usually in the five to ten year range.
2. It was bought as and used as a recreational property
3. It was bought for the purposes of earning long term rental income.
In the case number 1, there is no tax.
In the case of numbers 2 and 3, the sale is treated as a capital gain and only fifty per cent of the profit is taxed at your regular tax rates.
Lots of / many (anyone caught) are taxed full tax rates when they buy a house, move in, fix it up and sell it a year or two later and then do
another one.
Of course, most are NOT caught in these circumstances.
However, "any" flip is going to be straight income unless the person can prove that they bought it to live in and then:
* married a person with three children and it is not big enough (had to sell and bought bigger)
* were transferred to another city (had to sell to buy in new city)
* lost their job, were injured, etc. and can no longer afford to move in. In this case, they would have to show that they had the finances to have paid for it when they bought it. (Not only can they not afford it but they have moved into their parents' basement (boomeranged).
* Inherited a house from their parents and do not need it any more. (are living in the new house)
You can read more by going to www.centa.com - click on tax guide in the top left hand corner and then click on the "capital gain" section.
david
This older q & A also gives an idea
My daughter is closing on a presale Yaletown condominium this summer. She is working until Christmas in Alberta. She returns to Vancouver from Jan to say and if the job becomes a full time position, then she may return to Alberta to live. At the time of presale, February 2004, we thought that the suite would be assigned to her and that she would live in the suite.
I was hoping that she could declare the suite as her permanent residence since she is only renting in Alberta and the work is not permanent.
In May 2007, she could decide to keep or sell the suite.
What does she need to do in order to qualify the suite as her permanent residence?
-----------------------------------------
david ingram replies:
There is no absolute answer because you can call a toad a frog all day long but it is still a toad.
To be a principal residence and tax free for income tax purposes, the
property must have been bought by her to live in and she HAS TO move into it. - No exceptions that I know of.
You can expect that the CRA will be looking at "every" quick resale in EVERY downtown building.
In deciding if it is a capital gain or a flip, the CRA will be looking at
the suitability of the unit as a residence, the ability to pay for the unit
and past and even future performance.
In other words if she claimed this one as a principal residence and then did it again a year later, the CRA would have every right to go back and reclassify the first one.
----------------------------
On February 11, 2008, David
Ingram wrote:
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 line 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. e bankruptcy expert US Canada Canadian American Mexican Income Tax service and help
However, I regularly search for the words"PAYING
CUSTOMER" and always answer them first if they did not get spammed out.
For the last two weeks, I have just found out that my own email notes
to myself have been spammed out and as an example, as I wrote this on
Dec 25, 2007 since June 16th, my 'spammed out' box has
47,941 unread messages, my deleted box has 16645 I have actually looked
at and deleted and I have actually answered 1234 email questions for
clients and strangers without sending a bill. I have also put aside
847 messages that I am maybe going to try and answer because they look
interesting. -e bankruptcy expert US Canada Canadian American
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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 service help.
$1,700 would be for two people with income from two countries
Catch - up returns for the US where we use the Canadian return as a guide for seven years at a time will be from $150 to $600.00 per year depending upon numbers of bank accounts, RRSP's, existence of rental houses, self employment, etc. Note that these returns tend to be informational rather than taxable. In fact, if there are children involved, we usually get refunds of $1,000 per child per year for 3 years. We have done several catch-ups where the client has recieved as much as $6,000 back for an $1,800 bill and one recently with 6 children is resulting in over $12,000 refund.
David Ingram expert income tax service 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 advice on bankruptcy
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 line 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. e bankruptcy expert US Canada Canadian American Mexican Income Tax service and help
Therefore, if an email is not answered in 24 to
48 hours, it is likely lost in space.
You can try and resend it but if important AND YOU TRULY WANT OR NEED
AN ANSWER from 'me', 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. david ingram expert
US Canada Canadian American Mexican Income Tax service and help.
david ingram's US / Canada Services
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My Home office is at:
david ingram's US / Canada Services
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My Home office is at:
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Cell (604) 657-8451 -
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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 service help.
Disclaimer:
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consultation and is to be regarded only as general comment. Nothing
in this message is or should be construed as advice in any particular
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David Ingram
gives expert income tax service & 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 $450 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. ($472.50 with GST if in
Canada) expert US Canada Canadian American
Mexican
Income Tax service and help.
This is not intended to be definitive
but in general I am quoting $900 to $3,000 for a dual country tax
return.
$900 would be one T4 slip one W2 slip
one or two interest slips and you lived in one country only (but were
filing both countries) - no self employment or rentals or capital gains
- you did not move into or out of the country in this year.
$1,200 would be the same with one
rental
$1,300 would be the same with one
business no rental
$1,300 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.
$1,600 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
$1,700 would be for two people with income from two countries
$3,000 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 $200.00 up.
With a Rental for $400, two or three
rentals for $550 to $700 (i.e. $150 per rental) First year Rental -
plus $250.
A Business for $400 - Rental and
business likely $550 to $700
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 $900 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.
Catch - up returns for the US where we use the Canadian return as a guide for seven years at a time will be from $150 to $600.00 per year depending upon numbers of bank accounts, RRSP's, existence of rental houses, self employment, etc. Note that these returns tend to be informational rather than taxable. In fact, if there are children involved, we usually get refunds of $1,000 per child per year for 3 years. We have done several catch-ups where the client has recieved as much as $6,000 back for an $1,800 bill and one recently with 6 children is resulting in over $12,000 refund.
This is a
guideline not etched in stone. If you do
your own TDF-90 forms, it is to your advantage. However, if we put them
in the first year, the computer carries them forward beautifully.
This from "ask an income trusts tax service 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
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