I own a duplex that was my principle residence for over 17 yrs. I moved out of it about a year ago when I bought a new home. I have continued to rent both units out and now I am thinking of selling the property but fear I will be taxed heavily on capital gains if I sell can any one explain how capital gains will affect me in this transaction. Thank you for any help on this matter.
The safe bet is 50% of your duplex will be subject to 50% taxation (capital gains) of the difference between your purchase price and sale price at your marginal rate. So say you bought for $150k, sell for $300k...then you have 150k capital gains less 50% (as only 50% is subject to any tax at all) so $75k subject to tax at your marginal tax rate. Now since (for example) you rented out 50% of your residence then only half of the $75k is subject to tax - the other half of that is tax exempt as your principle residence.
You might "push the envelop" and take the tax code to imply that the ENTIRE residence is your primary residence and you can't part any of the property out and sell a portion of it and so owe no tax on it at all. The tax law only states that you can NOT have more than ONE primary residence at a time - dig deep for the actual code and there's a lot of area up for debate. The code doesn't deal specifically with this situation.
I know some people will call their cottage their principle residence and this is okay if they spend "some of the year there." I think just because you used some of your property for income, doesn't mean some of your residence wasn't your primary residence. However, this will be up to the tax man and his interpretation.
So in my opinion, if you lived there, 100% of it is your house and so none of it is taxable. Talk to an accountant...I did and this is what he figured. I know some accountants will tell you the other way and call only 50% of the premises exempt from tax. It really depends on where you want to lie on the line.
I'm interested to hear other opinions on the matter.
Last edited by Chris L; 2012-08-18 at 11:02 AM.
Here are two links that will help you decide which way to go:
http://www.hrbtaxtalk.ca/blog/so-you...lord-now-what/
http://www.hrbtaxtalk.ca/blog/what-y...nce-exemption/
Here's another paragraph (http://www.taxtips.ca/personaltax/pr...ngeinuse.htm):
This is where the gray comes in.
What if I rent out part of my home or cottage?
When you rent out a part of your home or cottage, you are considered to have changed the use of that part of the home from personal-use to rental property. Depending on the circumstances, when you eventually sell your home, or have a deemed disposition because you stop renting part of it, you may have to report a capital gain on the portion of your home that you rented out. The CRA Rental Income Tax Guide, T4036, and Interpretation Bulletin IT120 Principal Residence (paragraphs 30-32) state that if all of the following conditions are met, you will not be considered to have a change in use:
- the part of the home used for rental purposes is small in relation to the size of the whole property,
- you do not make any structural changes to the property to make it more suitable for rental purposes, and
- you do not claim any capital cost allowance on the part you are using for rental purposes.
If all of the above conditions are met, you will not have to report a capital gain when the property is sold or the rental is stopped. Otherwise, you will have to report a capital gain based on the portion of the house that was rented.
. . . as stated above, the issue of whether or not you took the CCA on the rental portion of the property. I had a long discussion with my accountant on whether to claim CCA, and in the end decide it was better not too in my situation (basement apartment not a duplex)
Assuming that the OP did not live in both units simultaneously, or change it from one unit to 2 units after he moved out, this is not correct. A Principal Residence is a housing unit.Originally Posted by Chris L
From CRA IT 120:
The following are the types of property that can qualify as a “principal residence”:
• a housing unit, which includes:
− a house,
− an apartment or unit in a duplex, apartment building
or condominium,
...
... that is "ordinarily inhabited" by the taxpayer in question.
Ergo, the principal residence exemption can apply to only one half of a duplex unit. (Technically it might not be exactly half if the two units are not equal in value, but we won't split hairs.)
Last edited by OhGreatGuru; 2012-08-17 at 07:37 PM.
Yes of course, it might be some fraction of the entire dwelling not exactly 50%. No doubt an expert is going to be more versed in these specific circumstances. I would like to hear from a case where you might and might not be able to take the tax exemption....
As provided above: a basement apartment, when no CCA is taken, and no structural changes were made to render it suitable for renting.
There's no way a duplex rented for 17 years could be considered wholly a principle residence. Taking CCA is just ONE factor: the main issue is the overall size of the rented dwelling vs. the owner-occupied dwelling. With a duplex, the rented portion will not be considered "small" in relation to the owner-occupied portion. There's really no grey here.
To echo the above, you're likely looking at tax of approx 50%(non prince res duplex bit), @ 50% (cap gains inclusion rate) x tax rate. At the top rate of 45% this means you'll be taxed at approx 11% of your total gain. 10% of the gain is probably a decent ballpark for planning purposes. So, if your gain was $100K, you'll owe about $10K in tax; at $1m, you'll owe $100K.
With slight variations for dates of change in use, recapture on previously claimed CCA and other wiggles.
Thank You
O.K well first of all thanks so much for all the help on this, this is the first time I have ever posted a question on any forum and i am very happy I did. Just to clear up a few of the details and probably make it more confusing.I lived in the house for 17 years I only rented out part for about 8 years and then i moved out and have continued to rent it out( both units )for 1 year and 4months .I originally bought the house for 105,000 and in todays market I think i would be lucky to sell for 180,000-200,000. Does this change any of that .i will check out the links that you have kindly provided ,and oh yeah I am going to go to an acountant on this one I just wanted to be abit more informed before I go there cus I don't always get what he is trying to tell me ?thanks again:
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