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Hello David,
I'm wondering if you can offer a suggestion on the following scenario.
My in-laws own two homes. One they have lived in for 20 years and the
other they have rented out for the past 20 years, but prior to that they
lived in it also. They are at a point in their lives where they no longer
want the stress of being landlords. I had thought that if they sold the
house they currently lived in and moved into the rental home, they would
avoid paying capital gains. But how long do they have to live in the house
that is currently rented before they would not have to pay capital gains on
it should they be in a position to have to sell it?
Also, they have two grown children and they are trying to think of
ways to 'avoid' them (the children) having to pay a large amount in estate
taxes when that time comes.
If you could offer some suggestions I could take to them, I want to
encourage them to set up a consultation with yourself or someone in your
office that can assist them with these matters.
Thank you,
MXXXX
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david ingram replies:
You can only have "one" house tax free during any one period of time.
"IF" the rented house was back in Toronto and they were transferred to Vancouver and rented out the old house And were still working for the same company, they could claim the rental house as a tax free sale BUT then the "Vancouver" house would be taxable.
In other words, in that scenario, you could claim one or the other tax free. And this does not mean, sell one house tax free this year and the other one tax free next year. The T2091 declaration form requires you to declare the years you "lived" in it and the years you are declaring it tax free. (The US requires you to have lived in your house for 2 out of the last three years).
If they were to move back into the rental house it would not save any capital gains tax.In fact If they were to move back into the rental house today, it would trigger a "deemed sale" through a change of use and they would owe tax on the capital gains "right now".
However, if they filed the form T2091, they could claim the time they lived in it before renting it out tax free on a pro rata basis; i.e. number of years rented out before rental over the number of years owned times the profit.
You should be able to get a copy of this form at:
http://www.ccra-adrc.gc.ca/E/pbg/tf/t2091_ind/t2091_ind-02e.pdf
Any other forms are available at the CCRA website at
http://www.ccra-adrc.gc.ca
You can find more information about cpital gains tax and a lot of sample cases at www.centa.com click on tax guide and click on capital gains
David Ingram of the CEN-TA Group
US / Canada / Mexico tax and working Visa Specialists
108-100 Park Royal South
West Vancouver, BC, CANADA, V7T 1A2
(604) 913-9133 - Fax 913-9123 [email protected]
www.centa.com www.david-ingram.com
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