QUESTION: My wife and I purchased a new home 5 years ago. We have been renting out our previous one since. We are thinking about selling the rental property. We will profit $70000 on the sale before paying off the $30000 mortgage. Will we be required to show capital gains or could we invest it in our new home? Would the capital gains be on the $70000 or the gain minus the mortgage on the house?
Thanks,
david ingram replies:
The capital gain is calculated as the difference between its value the day you moved out and the amount you sold it for less costs of the sale such as real estate commissions, fixing up expenses, and legal fees.
You do have the opportunity to claim that house tax free by filing form T2091, but you should have made an election under section 45(2) the first year you rented it. The problem with this:
It makes thhe house you are living in taxable for the same time period. If it went up more than the $70,000, you will owe more than the tax on the first house. This 'can' be beneficial if you do not intend to sell your present home for another ten or twenty years. The reson is because of the present value of the money. i.e., it is usually better for your finances to pay $20,000 ten years from now then to pay $10,000 today. It will ALWAYS be better if you do not need to pay the $20,000 for twenty years.
At the moment, I have never seen the CRA turn down a late section 45(2) election.
The following older question on income tax help will help explain section 45(2) to you.
QUESTION: Hi David,
Please help.
I bought a Calgary condo in Oct 2003, and lived in the condo until March 2005, when I bought my present house.
The condo was rented from April 2005 to August 2006, and I sold it in Nov 2006, at a gain.
My question: Would I qualify for the Principal Residence exception and be exempted from Capital Gains tax for the condo sale?
Thanks.
Best Regards,
---------------------------------------------------------------------------__________________________________________________________________
david ingram replies:
I am too busy for this but hope you get something from the following:
>>
>> 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.
If you have bought and lived in another house, you have to choose one or the other as your tax free residence for the time you owned both.
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.
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 tha tthe 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 other
similar questions can be obtained free on Air every Sunday
morning.
Every Sunday at 9:00 AM on 600AM in
Vancouver, Fred Snyder of Cartier Partners and I will be hosting an INFOMERCIAL
but LIVE talk show called "ITS YOUR MONEY"
Those outside of the Lower Mainland
will be able to listen on the internet at
Local phone calls to (604) 280-0600
- Long distance calls to 1-866-778-0600.
Old shows are archived at the
site.
David Ingram wrote:
However, I regularly search for the words"PAYING CUSTOMER" and
always answer them first if they did not get spammed out. As an example, as I
write this on June 28th, since June 16th (12 days), my 'spammed out' box has
7,118 unread messages, my deleted box has 2630 I have actually looked at and
deleted and I have answerd 63 email questions I have answered for clients and
strangers. I have also put aside 446 messages that I am maybe going to try
and answer because they look interesting.
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)
$1,600 would be for two people with income from two countries
David Ingram expert income tax 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
---------------------------------------------------------------------------------------------------------------
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 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.
Therefore, if an email is not answered in 24 to 36 hours, it
is lost in space. You can try and resend it but if important, 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's US / Canada Services
US / Canada / Mexico tax, Immigration and working Visa Specialists
US / Canada Real Estate Specialists
My Home office is at:
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)
Disclaimer: This question has been answered without detailed
information or consultation and is to be regarded only as general
comment. Nothing in this message is or should be construed as advice
in any particular circumstances. No contract exists between the reader and the
author and any and all non-contractual duties are expressly denied. All
readers should obtain formal advice from a competent and
appropriately qualified legal practitioner or tax specialist
for expert help, assistance, preparation,
or consultation in connection with personal or
business affairs such as at www.centa.com. If you forward this message, this disclaimer must be
included."
David Ingram gives expert income
tax & 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 $400 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.
This is not intended to be definitive but in
general I am quoting $800 to $2,800 for a dual country tax return.
$800 would be one T4 slip one W2 slip one or two
interest slips and you lived in one country only - no self employment or rentals
or capital gains - you did not move into or out of the country in this
year.
$1,000 would be the same with one rental
$1,200 would be the same with one business no
rental
$1,200 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.
$1,500 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
$1,600 would be for two people with income from two countries
$2,800 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 $150.00 up.
With a Rental for $350
A Business for $350 - Rental and business likely
$450
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 $800 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.
Just a guideline not etched in
stone.
This from "ask an income trusts tax 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 returns with multi jurisdictional cross and
trans border expatriate problems for the United States, Canada, Mexico,
Great Britain, United Kingdom, Kuwait, Dubai, Saudi Arabia, Thailand,
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