# Deductions



## Inbox282 (Jun 3, 2017)

We have a primary residence and are looking to buy another property. We understand that any gains from the additional property will be classified as capital gain. We are not renting the property out as we will need to be there occasionally. With a rental property I know that you can get deductions, but are we able to get any deductions in this situation? Can we write off stuff like mortgage interest, renovations, and property tax against the capital gain when we sell?


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## Just a Guy (Mar 27, 2012)

Generally you can write off anything that is intended to make you money so yes mortgage all those things are a write off. Of course it has to pass the "reasonable costs" sniff test.


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## twa2w (Mar 5, 2016)

Inbox282 said:


> We have a primary residence and are looking to buy another property. We understand that any gains from the additional property will be classified as capital gain. We are not renting the property out as we will need to be there occasionally. With a rental property I know that you can get deductions, but are we able to get any deductions in this situation? Can we write off stuff like mortgage interest, renovations, and property tax against the capital gain when we sell?


If the home is not rented and is for personal use then you cannot write off the interest on the mortgage, propety tax or any maintenance costs.
Cost of improvements can be added to your ACB when you sell.
If you sell at a loss you cannot claim a capital loss.


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## Just a Guy (Mar 27, 2012)

Oh yeah, I missed the personal use part. If it was investment property you could.


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## Eclectic12 (Oct 20, 2010)

Question is ... can part of the second property be rented out while enough for your use is still available?

If so, then the deductions will be possible.
http://www.taxtips.ca/personaltax/propertyrental/rentalexpenses.htm


As indicated about above, should the second property be strictly personal use - no deductions will be allowed where a capital gain on the increase will need to be reported/taxed.


Cheers


Cheers


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## Mortgage u/w (Feb 6, 2014)

Is a secondary property really subjected to capital gains? Its used for personal purposes and not intended as an investment so why the capital gain??


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## Spudd (Oct 11, 2011)

Mortgage u/w said:


> Is a secondary property really subjected to capital gains? Its used for personal purposes and not intended as an investment so why the capital gain??


Because anything you buy and then later sell for a gain is subject to capital gains. The only exception is your primary residence. The govt doesn't care if you intended it as an investment or not.


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## Eclectic12 (Oct 20, 2010)

Mortgage u/w said:


> Is a secondary property really subjected to capital gains? Its used for personal purposes and not intended as an investment so why the capital gain??


??? ... you buy a cottage for personal use as a second property, one has choose which property to apply the PR exemption to and which property to pay CG so I am not sure why you are suggesting "personal use" versus "investment" makes a difference.


> If you have both a home and a cottage, and sell one of them at a profit, you must make a decision as to whether to designate the sold property as your principal residence for some or all of the years it was owned.
> 
> If you sell a cottage that you have owned for 10 years, you *could designate the cottage as your principal residence for the entire 10 years in order to eliminate capital gains tax, as long as you have not designated any other property as your principal residence during that time*.
> 
> This would mean that when you sell your home you will likely be paying capital gains tax, as you *cannot also designate the home as your principal residence for those 10 years*. If you have a significant gain so far on your home but a small gain on the sale of the cottage, it might be best to save the exemption for the sale of your home. ...


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


Basically if it is has the potential to be sold for a capital gain - unless there is an exemption available, it is subject to capital gains taxes. Now capital losses may help reduce/eliminate the capital gain but this does not change that it is taxable.


Cheers


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## Mortgage u/w (Feb 6, 2014)

Eclectic12 said:


> I am not sure why you are suggesting "personal use" versus "investment" makes a difference.


Because my logic says that if you are allowed an exemption for a primary residence which is intended for personal uses, the same should apply to a cottage or secondary home. I understand now its not the case, but I can't say I agree with it.


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## Eclectic12 (Oct 20, 2010)

^^^

I seem to recall at one point, each spouse was allowed a PRE ... which meant that while this was in effect, both a residence and the cottage would be covered. 

Of course the bigger prize was prior to 1972 when capital gains tax did not exist in Canada. :biggrin:

OTOH, the commission of the day recommended a 100% inclusion rate for CG, over the years the inclusion rate has fluctuated between 50% and 75% - depending on what party is in power and what they decided to do. :wink:


Cheers


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## Dkogan (May 20, 2017)

*2nd property*

There are a couple of things to consider with respect to this post, and some of the follow ups:

1) If you are going to be using it for personal purposes, than the principal residence exemption can still apply. The way the exemption works, is that you designate a house for every year. Consider this as a basic example. Say the house you live in right now you bought in 2010, and that you buy the second residence in 2017. Say property 1, cost you $100,000 and property 2 $200,000. You decide to sell property 1 in year 2020. You have owned property 1 for 11 years, and property 2 for 4 years at this point. Say property 1 is worth $400,000 in 2020, and property 2 $800,000. Your gain/year will be $27,273 for property 1 and $150,000 for property 2. You'll want to designate property 2 for the maximum number of years, as it has the largest gain per year, but the formula lets you add one year. This means that you'll designate property 1 for years 2010-2017 which is 8 years + 1 = 9 X $27,273 = 245,457 less total gain of $300,000, taxable capital gain $54,543, but what it gives you is that you can now claim property 2 to be your principal residence from 2018-2020, which is 3 years + 1 = 4 X $150,000, which is $600,000, so now there's no tax on property number 2. To sum it up, you do a designation by year. So both properties can qualify but not for the same years.

2) If you rent a part of the property #2 out, you can claim a prorate share of the expenses, and as long as you don't claim tax depreciation on the property you can still claim the principal residence exemption based on 1 above. You'll also have to file an election to make sure there's no change in use.

My best advice, hire an accountant. Will make sure you don't pay taxes you shouldn't have to. Feel free to hire me by the way.


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## Inbox282 (Jun 3, 2017)

Thanks so much for all the GREAT advice. There is a lot to consider here.


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