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International Income Tax expert - real estate IRA's 401(K)
My question is: Canadian-specific
QUESTION: In November of 2005 I aquired a property. In December 2005 I had
large offer on the property which would give me 300,000 in capitol gains.
What would the tax implications be if I sold it now versus 1 year later (ie.
after owning it for a year)..or is there any difference?
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david ingram replies:
If you bought it to resell - i.e. flip, any profit is considered to be a
venture in the nature of trade and taxable at straight tax rates.
If you bought it for the long term but are selling it so soon because of the
great price, it is also straight income - i.e. you sold it for the profit,
it must be a venture in trade.
If you bought it to live in and moved in and "then" got the price of the
century in an unsolicited offer - i.e. you did not have it listed for sale,
it is likely straight income. If it was listed, it is likely straight
income because you were obviously flipping real estate and the fact that you
lived in it, does not make it a principal residence for tax purposes if you
did not intend to live in it for years when you bought it.
If you moved in, listed it for sale and it did not sell for seven years but
you kept on trying to sell it, it would be straight income because you
INTENDED to flip it.
In other words, it does not really matter how long you own it, it depends
upon what you intended when you bought it.
Holding on longer to make it "look" like a capital gain does NOT make it a
capital gain as many have found to their distress.
You can call a toad a frog all day long but it is still a toad.
When is it a capital gain. Well,
* it would be a capital gain if you had bought it in November and then
discovered something you would rather have for the long term in December and
put it up for sale so you could buy the new property you had discovered.
* It would be a capital gain if you had bought it in November and discovered
you had cancer in December and sold it to pay for a trip to Korea to cure
your cancer.
* It would be tax free if you had bought it in November to live in for 20
years and were transferred to Toronto in December.
* It would be tax free if you had bought it in November to build a building
and your spouse left and you could not build on the property or could not
get financing because of a change in your circumstances.
* It would be a capital gain if you had bought it in November with a heavy
debt load and lost your job and could not pay for it and sold it because you
had to.
Go to www.centa.com and click on Tax Guide in the top left hand box. Read
the section on "capital gains".
-------------------
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