Converting rental property to personal use
I have a second home which I purchased in the summer of 2003 and have been renting out. Paid $95k for it. Current sale prices are really arbitrary since it's located in a small town and there are really no two properties the same. It is a waterfront town and there are huge differences depending on where you are located (waterfront or not).
I might get $150k if I sold the property today, but the same property goes for $200k (waterfront) and $90-95k (more inland than I am).
I was thinking of converting the property back to personal use since I've only owned it a few years and the area is really increasing in value quickly. If I ever sell it (never plan to) it would become my personal residence for a few years so I wouldn't pay any capital gains on it.
Some questions:
1. Since it is operated as a "rental property" what do I need to do for the CRA to convert it? Is there an actual form that needs to be filled out, or do I just stop declaring it as a rental property (ie. put an end date to the rental on this year's tax return)?
2. I would likely be able to show similar properties selling in the $100-115k range which should certainly look reasonable to CRA ($20% gain in 4 years isn't out of the ordinary at all!). I assume a letter from a realtor + copies of a few similar listings would be all the documentation I need?
3. I assume it makes sense to convert it on Jan 2nd 2008 so I'm not really liable for the capital gains on the property till April of 2009? On a side note, I am doing a whole bunch of property renovations/landscaping ($25-30k) to the property in early 2008 which I could write off.... should I do those first, write them off (therefore 2008 would be a HUGE loss) then "close up shop" as a rental? 2003/2004 were loss years (audited and agreed to by CRA), 2005 was a loss (never audited), 2006 was profitable (but only by $3k or so) and 2007 will likely be profitable (by a small amount only). So with 2 years of profits (of course overshadowed by decent sized losses the first few years) am I safe to have this big loss in the "two weeks I ran it as a rental property in 08"?
Some notes:
-Obviously I'm trying to convert it at as low a price as possible, since I'm paying capital gains on 50% of the difference between purchase and sale prices so I want to narrow that gap as much as possible.
Thanks!
I might get $150k if I sold the property today, but the same property goes for $200k (waterfront) and $90-95k (more inland than I am).
I was thinking of converting the property back to personal use since I've only owned it a few years and the area is really increasing in value quickly. If I ever sell it (never plan to) it would become my personal residence for a few years so I wouldn't pay any capital gains on it.
Some questions:
1. Since it is operated as a "rental property" what do I need to do for the CRA to convert it? Is there an actual form that needs to be filled out, or do I just stop declaring it as a rental property (ie. put an end date to the rental on this year's tax return)?
2. I would likely be able to show similar properties selling in the $100-115k range which should certainly look reasonable to CRA ($20% gain in 4 years isn't out of the ordinary at all!). I assume a letter from a realtor + copies of a few similar listings would be all the documentation I need?
3. I assume it makes sense to convert it on Jan 2nd 2008 so I'm not really liable for the capital gains on the property till April of 2009? On a side note, I am doing a whole bunch of property renovations/landscaping ($25-30k) to the property in early 2008 which I could write off.... should I do those first, write them off (therefore 2008 would be a HUGE loss) then "close up shop" as a rental? 2003/2004 were loss years (audited and agreed to by CRA), 2005 was a loss (never audited), 2006 was profitable (but only by $3k or so) and 2007 will likely be profitable (by a small amount only). So with 2 years of profits (of course overshadowed by decent sized losses the first few years) am I safe to have this big loss in the "two weeks I ran it as a rental property in 08"?
Some notes:
-Obviously I'm trying to convert it at as low a price as possible, since I'm paying capital gains on 50% of the difference between purchase and sale prices so I want to narrow that gap as much as possible.
Thanks!
