# Rental Properties & capital gains



## farmerdave (May 11, 2012)

Hi I am new to this forum and looking for some help in understanding capital gains. I own several rental properties and I am wanting to cash in on the high property values but do not want to pay the capital gains. Is there a capital gain exemption, or a life time allowable amount? What would be the best way to approach this?
Thanks
Dave


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## Quotealex (Aug 1, 2010)

The best way not to pay a capital gain tax is to sell the property not more than the price you bought it for.


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## Spudd (Oct 11, 2011)

You only have to pay tax on 50% of the amount of capital gains that you make. i.e. if you sell for $100,000 profit, you'll have to pay tax on $50,000 income. However there's no way to get around that, unless you also sell something else for a capital loss. Capital losses balance out capital gains.


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## farmerdave (May 11, 2012)

Quotealex said:


> The best way not to pay a capital gain tax is to sell the property not more than the price you bought it for.


The property value has more than tripled, I don't think RC would accept that.
Thanks


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## farmerdave (May 11, 2012)

Spudd said:


> You only have to pay tax on 50% of the amount of capital gains that you make. i.e. if you sell for $100,000 profit, you'll have to pay tax on $50,000 income. However there's no way to get around that, unless you also sell something else for a capital loss. Capital losses balance out capital gains.


OK if I purchased the house for $40,000. and sold it for $200,000. I would only pay gains on $80,000? I lived in the house for 20 years and have only rented it for the last 12 years does this matter?
Thanks


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## MoneyGal (Apr 24, 2009)

It does matter. 

You need to figure out what the house was worth when you converted it from your principal residence to a rental property. You will owe capital gains tax on ONE HALF the increase in value from the point at which you converted it to a rental until you sell it. 

Here is an example with numbers I am making up: You bought it for $40K. You lived in it for 8 years and then converted it to a rental property. When you converted it from your principal residence to a rental property, the fair market value of the house was $100K. Now you are selling it for $200K. After your costs are taken into account, you have a gain of $80K -- the increase of from $100K to $200K, minus $20K of expenses which adjust your cost base. Of that $80K, you will take $40K into income and be taxed on it. 

You should get professional advice. There are a number of strategies you could potentially use to decrease the tax bill, but what I typed out is the generic situation.


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## Just a Guy (Mar 27, 2012)

If you are married, and both names are on title, you can also income split it. So if you made $160,000, each of you would claim $40,000 in capital gains.


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## kcowan (Jul 1, 2010)

Just a Guy said:


> If you are married, and both names are on title, you can also income split it. So if you made $160,000, each of you would claim $40,000 in capital gains.


$80k in CG and $40k in added income each.


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## P_I (Dec 2, 2011)

At the risk of further complicating the tax calculation that MoneyGal outlines, have you claimed any Capital cost allowance (CCA) for rental property? If so, the tax calculation is impacted. You might also want to review Determining the capital cost of property - Special situations.


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## Quotealex (Aug 1, 2010)

farmerdave said:


> The property value has more than tripled, I don't think RC would accept that.
> Thanks


Option 2
I've known people that have sold properties balance of sale (i.e. financing by the owner) to defer capital gain... Not saying you should do that neighter.


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## MoneyGal (Apr 24, 2009)

P_I said:


> At the risk of further complicating the tax calculation that MoneyGal outlines, have you claimed any Capital cost allowance (CCA) for rental property? If so, the tax calculation is impacted. You might also want to review Determining the capital cost of property - Special situations.


I doubt it, but absolutely this would be a complicating factor...


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## farmerdave (May 11, 2012)

I think you have the best advice, I need professional advice.
Thank you for your comments


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## caricole (Mar 12, 2012)

farmerdave said:


> I think you have the best advice, I need professional advice.
> Thank you for your comments





> Rental Properties & capital gains
> Hi I am new to this forum and looking for some help in understanding capital gains. *I own several rental properties *and I am wanting to cash in on the high property values but do not want to pay the capital gains.


Very strange question fromm someone who owns several rental properties including one he has to déclare rental income since 12 years.....sounds more like a «BOOK QUESTION» where you dont need a PROFESSIONEL but some common sense

1) Establish commercial value of property in 2000 ( find municipal évaluation of the property on the property-tax bills of 2000) lets say 98.500$, this becomes your starting amount

2) After selling in 2012 you have the latest commercial value

3) The difference between the 2 is capital gain of which 50% is taxable as reported on schedule 3

4) Who is doing your incometaxes on your «SEVERAL» rental propertries ?????, if it is a «PROFESSIONAL» he should have given you the answer on your question FOR FREE in 15 seconds

5) A Quebec taxform usefull for any rental property income....even available IN FRENCH for Torontonians...lolol :hopelessness:
http://www.revenuquebec.ca/documents/en/formulaires/tp/tp-128-v(2011-11).pdf


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## MoneyGal (Apr 24, 2009)

Caricole; it's slightly more complicated than that. He can reduce the size of the gain by adjusting the cost base upwards. Also, depending on how the sale is structured, there are opportunities to spread the gain over more than one year. I suggested seeing a professional because depending on his situation, there may be factors which reduce the amount of tax payable from the basic calculation that you and I both outlined. 

If you've never sold a capital property, you might not know how the sale is treated - even if you've been using the property to generate income over many years. I don't think that is unusual!


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## caricole (Mar 12, 2012)

MoneyGal said:


> Caricole; it's slightly more complicated than that. He can reduce the size of the gain by adjusting the cost base upwards.
> 
> If you've never sold a capital property, you might not know how the sale is treated - even if you've been using the property to generate income over many years. I don't think that is unusual!


@ Moneygirl

Lets go first to his situatioin. SEVERAL rental properties of witch one at least sine 12 years

1) Establish municipal value at 2000

2) Establish municipal value in 2012..lets say 200.350$

Sold at 234.000$ commercial value 

Result 234.000/200.350 = 1,168% 

2000 municipal value 98.500

commecrial value 98.500 X 1,168 = 115.048$

Capital gain 234.000$ - 115.048$ = 118.952$

Goes on schedule 3, taxable = 50% 59.476 $ @ 40% = ± 24K, anybody in rental property knows this by heart

All thes complicated figures are just thrown in to mahe things «SEEMS» complicated and justifie the existance of these professionels

I have trown them overboard since a long time and laugh in their face over their incomnpétence.....but thats caricole

PS:

If I never transacted a real estate ?????

Please dont make me chukkle....even CRA had difficulty of following....just fun


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## MoneyGal (Apr 24, 2009)

I didn't mean you personally. What I meant is, someone who has acquired a capital property, and who has not yet disposed of a capital property, may perfectly well understand how to treat the income from a capital property, without knowing how the sale is treated at disposition. 

My additional points are that (a) it is likely his cost base can be adjusted upwards beyond the simple math both you AND I have set out, and (b) he may be able to structure the sale/disposition in a way that minimizes his tax due. I am suggesting he get professional advice because he is asking here, and he will only get generic responses here. I'm not sure why you are stepping over the adjustments to the cost base; they could be a significant factor in his overall tax position at disposition.


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## farmerdave (May 11, 2012)

I think another option my be to move back into the property for 1 year and then sell it. If it becomes my primary residance I would be expempt from the capital gains, is that true?
Thanks again Dave


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## MoneyGal (Apr 24, 2009)

You can't erase the whole gain by adding one more year of principal residency. Did you have another principal residence during the years when you were not living in the property? Here's the link you want to read on the CRA website: 

http://www.cra-arc.gc.ca/tx/ndvdls/...-ncm/lns101-170/127/rsdnc/chngs/menu-eng.html

Here is text from that link:

You can be considered to have sold all or part of your property even though you did not actually sell it. The following are some sample situations:

•You change all or part of your principal residence to a rental or business operation.
•You change your rental or business operation to a principal residence.

Every time you change the use of a property, you are considered to have sold the property at its fair market value and to have immediately reacquired the property for the same amount. You have to report the resulting capital gain or loss (in certain situations) in the year the change of use occurs.

If the property was your principal residence for any year you owned it before you changed its use, you do not have to pay tax on any gain that relates to those years. You only have to report the gain that relates to the years your home was not your principal residence.

If you were using the property to earn or produce income before you changed its use, see Real estate, depreciable property, and other properties for information on how to report any capital gain or loss.

/ end of quote

NOTE: there are special situations which affect how the capital gain is calculated. For example: 

http://www.cra-arc.gc.ca/tx/ndvdls/.../lns101-170/127/rsdnc/chngs/chngngll-eng.html

Note ALL the special sitations which apply at that link. It is possible that some of those special situations could apply to you. And even if none of those situations apply to you, it is possible to structure your sale so that you pay less tax than you would otherwise. 

I'm going to repeat that spending $100 (or whatever) to consult with a CA would be money well spent for you, potentially saving you $$$$$ in capital gains tax.


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## farmerdave (May 11, 2012)

Thank you again
Very good advice, I will be spending the money on a CA


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## Just a Guy (Mar 27, 2012)

farmerdave said:


> Thank you again
> Very good advice, I will be spending the money on a CA


Since it's a tax write off against rental income, you should have been doing it all along.


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## farmerdave (May 11, 2012)

I did have a CGA for 3 years, I found out the hard way that she did not know anything about Taxation.
It is hard to find someone that knows all the angles when it comes to Rental properties, capital gains, and Taxation.
I have no problem paying for competent help.


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## marina628 (Dec 14, 2010)

It is very easy to pay the capital gains when somebody else has paid off your mortgage , don't sweat it .


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## farmerdave (May 11, 2012)

Spoken like a tenant. I would be happy to debate the trials and tribulations of a landlord but I don't believe this is the forum for that.
Thanks for your comment


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## MoneyGal (Apr 24, 2009)

As a general rule, you can't get current tax deductions, AND current income, AND long-term capital gains out of a residential real estate investment. You can get up to TWO of those benefits, but not all three.


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## Just a Guy (Mar 27, 2012)

farmerdave said:


> I did have a CGA for 3 years, I found out the hard way that she did not know anything about Taxation.
> It is hard to find someone that knows all the angles when it comes to Rental properties, capital gains, and Taxation.
> I have no problem paying for competent help.


Well, picking the right advisors is part of the work when it comes to investing. I would advise you research all your advisors carefully. 

People give their hard earned money to financial advisors everyday just because they say they know what they are doing...then complain when they get lousy returns...so you're not alone.

Investing is work, people who treat it as such make money others are gambling on the work of others...usually ones who get paid regardless of performance.


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## Cal (Jun 17, 2009)

I am sure by this pont you have accepted that you will be paying some capital gains. How much, hopefully your CA can help you legally reduce the tax hit. But it is a rigged game that the gov't has when it comes to taxes. LOL.

Whether or not you exit all of your property positions, you should discuss the implicaitons of all with the CA. For future reference you should not enter into such a position without an exit strategy. Even if the strategy changes from year to year.


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## marina628 (Dec 14, 2010)

farmerdave said:


> Spoken like a tenant. I would be happy to debate the trials and tribulations of a landlord but I don't believe this is the forum for that.
> Thanks for your comment


I own 5 rental properties


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## caricole (Mar 12, 2012)

farmerdave said:


> I did have a CGA for 3 years, I found out the hard way that she did not know anything about Taxation.
> It is hard to find someone that knows all the angles when it comes to Rental properties, capital gains, and Taxation.
> I have no problem paying for competent help.


That's the problem

A 14 year old kid can do the accounting and taxes of a rental property

You do not have to pay for incompetence, all institutions are full of these useless «ADVISERS»

You should try one yourself to find out how easy it is instead of shoving it to someone else

Onc you have done «ONE» all the others are basicly the same, why spend money on worthless titles ?

http://www.revenuquebec.ca/documents/en/formulaires/tp/tp-128-v(2011-11).pdf


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