Personal residence rented out in - Sections 45(2) and 45(3) and election -
---------------------------------------------QUESTION: I bought a condo in Nov. 2006 and it was my principal residence from Nov '06 to July 31, '07. On Aug. 1, '07 I moved but kept the condo and rented it to a tenant. If I sell the condo this year or next year do I have to claim capital gains if the condo increases in value. How long can a property be considered a principal residence? I heard it was up to 4 years. Also, I was considering moving back into the condo before I sell it because somebody told me if I do that it will be considered my principal residence. If that is true - how long do I have to live there before I sell it.
david ingram replies:
I am too busy to answer this from scratch - this older question should give you the info you desire,.
--------------- My question is: Canadian-specific QUESTION: I have owned my home for 4 years and have subsequently moved in with my boyfriend and am now planning to sell my home. I have been renting it out for the past six months and am wondering about the tax implications relating to capital gains, thank you in advance, Adele._______________________________
david ingram replies:
You have not been living with the boyfriend long enough to be considered a common-law spouse sop at the moment - for a year anyway - you can both have a principal residence tax free.
After that, you are limited to one as a common law couple. Since you are selling yours now within a year, you will get any profit capital gains tax free by filing a section 45(2) election with your 2006 return reporting the rental income on schedule 776.
Attach a note to your 2006 tax return stating something like this
I hereby elect to consider the residence at xxx address, city, prov,etc, to be my principal residence for up to four years even though i did not ordinarily inhabit it after (date).
When you do sell, complete form T2091 to calculate the tax free portion. Form 2091 says you to do not need to file it with your return but keep it in case the CRA wants to see it. My suggestion is that you send it with the return and get it over with.
-------------------------------------------------
These older questions will give you a little more:
>> QUESTION:
>>
>> 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 CGT?
>>
>> 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:
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:
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.
However, that tax bill can be delayed by filing another election under Section 45(3). In this case, you would report the profit on Line 127 and then claim a deduction on line 256 under section 45(3). This election is not well known. I have Never, not once in the 36 years it has existed, seen another accountant use it.
However, that tax bill can be delayed by filing another election under Section 45(3). In this case, you would report the profit on Line 127 and then claim a deduction on line 256 under section 45(3). This election is not well known. I have Never, not once in the 36 years it has existed, seen another accountant use it.
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 $350.00 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 g for a telephone
consultation. His fee is $295.00 per HALF hour and you can get hold of
him at http://s1.amazon.com/exec/varzea/ts/exchange-glance/Y01Y4838730Y0462867/104-8053170-6203936
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
Answers to this and
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Every Sunday at 9:00 AM
on 600AM in Vancouver, Fred Snyder of DUNDEE WEALTH MANAGEMENT and I
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US/Canada/Mexico Tax Immigration & working Visa Specialists
US / Canada Real Estate Specialists
4466 Prospect Road (Personal residence by appointment only please)
North Vancouver, BC, CANADA, V7N 3L7
Calls accepted from 10 AM to 10 PM 7 days a week
Res (604) 980-3578 Cell (604) 657-8451
Bus (604) 980-0321 Fax (604) 980- 0325
[email protected] www.david-ingram.com
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SUGGESTED PRICE GUIDELINES - May 17, 2008
david ingram's US / Canada Services
US / Canada / Mexico tax, Immigration and working Visa Specialists
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My Home office is at:
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 received as much as $6,000 back for an $1,800 bill and one recently with 6 children is resulting in over $12,000 refund.
Email and Faxed information is convenient for the sender but very time consuming and hard to keep track of when they come in multiple files. As of May 1, 2008, we will charge or be charging a surcharge for information that comes in more than two files. It can take us a valuable hour or more to try and put together the file when someone sends 10 emails or 15 attachments, etc. We had one return with over 50 faxes and emails for instance.
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 service help.
pert US Canada
Canadian American
Mexican Income Tax service and help.
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 for in
person or if you are on the telephone in
Canada) expert US Canada Canadian American
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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. However, if
you have a stack of
1099, or T3 or T4A or T5 or K1 reporting forms, expect to pay an
average of $10.00 each with up to $50.00 for a K1 or T5013 or T5008 or
T101 --- Income trusts with amounts in box 42 are an even larger
problem and will be more expensive. - i.e.
20 information slips will be
at least $350.00
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 received as much as $6,000 back for an $1,800 bill and one recently with 6 children is resulting in over $12,000 refund.
Email and Faxed information is convenient for the sender but very time consuming and hard to keep track of when they come in multiple files. As of May 1, 2008, we will charge or be charging a surcharge for information that comes in more than two files. It can take us a valuable hour or more to try and put together the file when someone sends 10 emails or 15 attachments, etc. We had one return with over 50 faxes and emails for instance.
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.
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