QUESTION:
Hi,
I hope you can help me here. I am still having to do my 2003 taxes and
still having a hard to trying to sort through the shoebox.
I am a single mom who bought a residential property for 153,000 in Feb and
put in a suite downstairs. I started renting it out for $700 in Oct.
I spent approx 10,000 in putting the suite together.
In August 2004 I was at a neighbourhood picnic and I had a family asking me
if I would be interested in selling my place.
I accept their offer and bought myself a side by side duplex and converted
it into a 4 plex. I living in 1/4.
Question 1.
for 2003 tax what is all deductible? Would the reno for the downstairs
suite be a capital or an expense for 2003?
Would it mean I would have a loss because I only rented it out for a few
months in 2003. Am I able to carry the loss for the next yr? Or is it just
added to my selling price even though it's my principal residence.
Question 2. Since living in my new principal residence 4 plex I am not
enjoying living with this many people around me and having tenants this
close. It has a good return but don't know if I can put up with this much
longer. I am considering separating the title and selling one half.
What would I be into for taxes or would it be capital Gains tax free.
A note to all superstitious people especially the chinese. I live on a 1374
side and the other side is 1378. To make a long story short I couldn't move
into 1378 right away and decided to stay on 1374 and not pack up again
especially with 2 kids. 1374 has brought me nothing but bad luck. My last
house I sold had an address of 398883. I more than double my purchase
price. Plus had a really nice hassle free tenant in it. I will never buy
another house with 4's in it. 88888's are the way to go.
Look forward to your response
Thanks
---------------------------------------------
david ingram replies:
For 2003, the reno is an addition to the cost of the house. It is not
deductible against current income.
You would file a T1 return with a T776 for the rental income.
The T776 as a column for personal portions of expenses when you are renting
out a suite or half of a duplex. Be sure to claim all of the interest for
any money borrowed to put the suite in.
Although it is easy to suggest that the house is tax free as a principal
residence, your actions seem to suggest that maybe you were buying and
fixing up to sell. Accepting an unsolicited offer does NOT in itself, make
it tax free. It means that you sold it because you saw a profit and not
because the house did not fit, was in the wrong area, etc.
Following up with a duplex converted to a fourplex is more indication of a
venture in the nature of trade.
Your suggestion that you are considering selling have of the four-plex
because you do not like the people around you does not make a reason for
capital gains treatment on the first house either. Selling half of the
fourplex and staying in the same building with people around you sounds like
an excuse to sell for a profit.
I would not recommend that you split the fourplex because it is setting a
pattern.
In general, however, the sale of your first house should be capital gains
tax free if you built the suite as a mortgage helper and even the sale of a
duplex or triplex can be tax free if there is a bona fide reason to sell a
principal residence.
My understanding of the policy of the CRA is that anything sold in less than
2 years is subject to scrutiny.
Goto www.centa.com, click on the Tax Guide in the top left corner and read
the Capital Gains section a coupe of times. Pay attention to the Sacomanno
Case where he sold a triplex tax free even though the tax office tried to
tax him.
Good luck.
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