# Taxes on Capital Gains



## SkGold (Jan 20, 2014)

Do I need to pay taxes on capital gains if I will sell a rental property and will use these capital gains to cover a mortgage for my principal residence?

Here is the story in more details:

I bought a condo several years ago.
I used this condo for more than 2 years as principal residence.
Then I bought a house and used a condo as rental property for several years.
Now I want to sell condo and use capital gains from this sale to cover a mortgage for my house, which is my principal residence.
So do I need to pay taxes on capital gains from a condo sale? 

Thank you in advance.


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## Guban (Jul 5, 2011)

It does not matter what you do with the money that you got when you sold the condo. If you have a capital gain, you will have to pay. You may be able to reduce the gain, however. Since it was your principal residence, that fraction is not taxable. Where did you live when you rented out the condo?


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## SkGold (Jan 20, 2014)

Guban said:


> Where did you live when you rented out the condo?


In my house that I bought.



Guban said:


> Since it was your principal residence, that fraction is not taxable.


Sorry, I don't understand what this mean. What fraction is not taxable?


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## Eclectic12 (Oct 20, 2010)

The fraction that is not taxable is where one was using the condo as a primary residence.

For example, buy condo @ $200K in Feb 2005 and use it as principal residence .... no capital gains taxes and cost set at $200K.

Convert use of condo to rental in Oct 2007, say the condo fair market value (FMV) at the time of switching use was $230K. Ideally, when the conversion to rental happened, one arranged for a market valuation of the condo in order to be able to prove the increase in value.

Sell condo in Aug 2015 for $270K.

Taxable Capital Gain = Proceeds - Cost = $270K - $230K = $40K.

Notice that the $30K the condo increased in value ... while using it as a principal residence, is not subject to capital gains taxes (i.e. Feb 2005 to Oct 2007).


Without some way of proving the increase to $230K ... then the capital gain is $70K (i.e. $270K - $200K).


Cheers


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## cainvest (May 1, 2013)

Eclectic12 said:


> Without some way of proving the increase to $230K ... then the capital gain is $70K (i.e. $270K - $200K).


I gather that if another condo (like yours) was sold (and you knew the price) close to the start of the rental time one could argue to use that price as FMV?


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## Eclectic12 (Oct 20, 2010)

The example $70K CG would depend on whether one wanted to have no discussions should CRA audit. Or another way of putting it - this would be an extremely conservative type.

More likely ... one would get their best estimate, look at how solid the documentation was and maybe put in a bit of a safety factor of a lower number. 


CG is the lowest tax to be paying so one will have to decide how much risk for how much of a lower find CG.


Then too ... where one has some capital losses (CL) from other sources - that's another way the taxable CG can be lowered.


Cheers


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## Guban (Jul 5, 2011)

SkGold said:


> Sorry, I don't understand what this mean. What fraction is not taxable?


There is a formula that can be used to calculate the portion that is exempt from taxes, thereby giving you the part that is taxable. The exemption is the number of years you lived in the place +1 divided by the number of years you owned it.

See: 
http://www.taxtips.ca/filing/principalresidence.htm


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## SkGold (Jan 20, 2014)

Eclectic12 said:


> The fraction that is not taxable is where one was using the condo as a primary residence.
> 
> For example, buy condo @ $200K in Feb 2005 and use it as principal residence .... no capital gains taxes and cost set at $200K.
> 
> ...


Thank you very much for the explanation. It is clear now. Couple more questions:

1. I have condo appraisal at the time conversion to rental happened. Is it a good prove for the increase in value?

2. Can I deduct the realtor fee from the Taxable Capital Gain that I paid during the condo sale?

Thank you.


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## Eclectic12 (Oct 20, 2010)

A condo appraisal from a reputable source will work fine. You should take a look at Guban's link as you are likely able to reduce the CG a bit more based on the formula.

I expect the realtor fee for selling would be an allowable cost but I haven't checked.


Cheers


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