# rental house sold, capital gains questions



## thotho (May 7, 2013)

Hi guys, very excited about this forum! So glad I found it. 

I have a rental home which has burned down. I'm planning on taking the insurance money, paying off the mortgage and then selling or holding the land. I end up making more this way than rebuilding and then selling or renting out again. I have never lived in this home as it was a rental property from day 1. I have a few questions about the capital gains tax and how it will apply to this situation

1. How will they figure out my capital gain? The insurance money is not taxable, or is it? 

2. I have a friend who works for CRA who told me that if I have never had a capital gain then I would be exempt from the first $300,000 but I can't find any information about that. I was only able to find info about the 750k exemption for farmers. If there is one that applies to me that would be great. 

3. On a separate note, can you just move into a home and make it your primary residence just to avoid paying the gains tax? That hardly seems fair. Or does that only work on the gain from the date you move in to the date you sell and you still have to pay the gains tax from the date or purchase to the date you moved in? I've always wondered about that. 

thank you

*edit, title says rental house sold.. should read "rental house burned down"


----------



## MoneyGal (Apr 24, 2009)

1. You need professional tax advice on this point. While the insurance payout is not taxable, you will have a deemed disposition of the property at fair market value on the date of the fire, and if there is a gain, that gain will be taxable. Your insurance payout may or may not represent the fair market value of the house itself, but there is the land to consider, plus you have a mortgage, yadda yadda yadda. Get a chartered accountant on this one. 

2. There have been, over the years, lifetime capital gains exemptions for "ordinary" Canadians but these are now largely restricted to family farm and fishing operations, and shares in qualifying small businesses. Link from the 2013 federal budget with more high-level detail: http://actionplan.gc.ca/en/initiative/lifetime-capital-gains-exemption Short answer on this one is that your friend is incorrect. 

3. Realized gains in the value of your principal residence are exempt from tax from the date that the house in question becomes your principal residence, so the answer to your question is the second option.


----------



## thotho (May 7, 2013)

so they will try to value just what the land was worth when I bought it and then subtract the value of what the land was worth at the time of the fire? It's a little bit tricky because if they go but the taxable value of the land at the time of the fire it will be low. The land is worth more without the house on it because of the commercial appeal. Will they then try to use the value at which I sell the land for ? 

Thanks for your help


----------

