Personal Finance

Sold our second house, Tax questions?

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  • Dec 15th, 2013 5:48 pm
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[OP]
Newbie
Mar 10, 2010
31 posts
Calgary

Sold our second house, Tax questions?

I never had an RRSP. I have RRSP contribution room as 120k. I recieved 450k from selling our second house.

Question:
-Will that considered a taxed income?
-If so can I contribute 120k to minimize my taxes for this year?
14 replies
Deal Addict
Sep 20, 2006
1507 posts
55 upvotes
If you were living there for more than 1 year and it was your principle residence it is NOT TAXED. There is no tax on the proceeds on the sale of your principle residence regardless of if this is your first home, second home, third home..... etc etc.

If it was an investment property or a cottage or something like that, then there would be capital gains tax.
[OP]
Newbie
Mar 10, 2010
31 posts
Calgary
Chigu wrote:
Mar 24th, 2010 1:53 pm
If you were living there for more than 1 year and it was your principle residence it is NOT TAXED. There is no tax on the proceeds on the sale of your principle residence regardless of if this is your first home, second home, third home..... etc etc.

If it was an investment property or a cottage or something like that, then there would be capital gains tax.
capital gains tax!
Jr. Member
User avatar
Dec 9, 2008
103 posts
3 upvotes
Yes, capital gains tax. And yes, you can make use of your unused RRSP contribution room to minimize the tax hit.
Deal Addict
May 24, 2006
1741 posts
166 upvotes
Chigu wrote:
Mar 24th, 2010 1:53 pm
If you were living there for more than 1 year and it was your principle residence it is NOT TAXED. There is no tax on the proceeds on the sale of your principle residence regardless of if this is your first home, second home, third home..... etc etc.

If it was an investment property or a cottage or something like that, then there would be capital gains tax.
Uhh...that's only true if you did not own them all at the same time. PRE does not exempt ALL your residences. You choose, for each year, which residence will be your PR, not all of them.

OP, few things..

1. Assuming you don't/can't use your principle residence exemption (PRE), then you will be taxed on 50% of your capital gain. You didn't tell us the cost, so I can't really give you any advice on that.

2. You can contribute now and deduct for your income in 2010 but whether it makes sense still depends on other factors.

3. How PRE works is, if you (or anyone in your immediate family) live in that place at any time during the year and did not rent it out (i.e. cottage works still), you can designate that residence to be your PR for that year. You are given an additional year that you can use as well.

There are a lot of things to consider as well, so without more information, I cannot tell you what's the best thing (tax wise) to do.
Deal Addict
Sep 20, 2006
1507 posts
55 upvotes
Not sure what the OP is asking, is this your second home that you LIVED in or is it that you held multiple homes at the same time?
Jr. Member
Jul 7, 2003
127 posts
9 upvotes
Ajax
Although you can switch your principal residence like you said, I believe that you still have to pay taxes on the capital gain of the second house before you move it.

For example,
you bought the second house for 150K a few years ago.
Last year, you designated it as your primary residence and the market value at the time was 300K.
If you sell it this year for 450K, you do not pay any tax on 150K gain (450K-300K) but you still have to pay for the capital gain tax on (300K - 150K).
br0pbr0p wrote:
Mar 24th, 2010 2:08 pm
Uhh...that's only true if you did not own them all at the same time. PRE does not exempt ALL your residences. You choose, for each year, which residence will be your PR, not all of them.

OP, few things..

1. Assuming you don't/can't use your principle residence exemption (PRE), then you will be taxed on 50% of your capital gain. You didn't tell us the cost, so I can't really give you any advice on that.

2. You can contribute now and deduct for your income in 2010 but whether it makes sense still depends on other factors.

3. How PRE works is, if you (or anyone in your immediate family) live in that place at any time during the year and did not rent it out (i.e. cottage works still), you can designate that residence to be your PR for that year. You are given an additional year that you can use as well.

There are a lot of things to consider as well, so without more information, I cannot tell you what's the best thing (tax wise) to do.
Deal Addict
Dec 5, 2003
1326 posts
74 upvotes
Go see an accountant - they might be able to save you some money (and cost you big fees).

Unless you know basic tax planning. If that second property can be used for the exemption then you would want to calculate per year gain on each propperty and figure out which one to claim. There are also additional things to know about how the exemption is calculated so either contact a professional or pick up a tax book and try to calculate it.

Not super technical but it isn't straight forward either. I guess a simple example would be... you own a house in the city bought for 10k 10 yrs ago and its now worth 100k. Thats 9k gain per year. You bought a cottage 5 yrs ago for 10k and it is now worth 110k. Thats 20k gain per year. Which one do you think I will want to claim exemption on? In addition you can allocate an additional year later on to your house in the city. That is just an illustrative example and you can see how it will cost you if you don't do the right thing. Assuming your cap gain is 200k thats likely 30k-40k in taxes owed. Don't cheap out on professional advice on this one.
Deal Addict
May 24, 2006
1741 posts
166 upvotes
rp wrote:
Mar 25th, 2010 12:03 pm
Although you can switch your principal residence like you said, I believe that you still have to pay taxes on the capital gain of the second house before you move it.

For example,
you bought the second house for 150K a few years ago.
Last year, you designated it as your primary residence and the market value at the time was 300K.
If you sell it this year for 450K, you do not pay any tax on 150K gain (450K-300K) but you still have to pay for the capital gain tax on (300K - 150K).
No, how PRE works is this.

Say you have 2 houses:
House 1: Owned from 2000 to 2005 (6 years inclusive)
House 2: Owned from 2002 to 2009 (8 years inclusive)

You can for each house, designate up to the total number of years owned. Between 2000 and 2009, you have 10 years + 1 additional years that CRA gives for you (basically to make up for those who change houses and own two in one year).

Anyhow, when you sell House 1, you can designate up to 6 years. If you designate only 2000-2002, then you will get taxed on the remaining 3 years, or 3/6 of the capital gain. If you designate 5 years, then you pay 1/6 of the capital gain. You can't have a deemed disposition for the purpose of PRE and you don't declare which is your PR every year, only when you are making a PRE filing (i.e. when you actually sell a house).

So if you designate only 2000 - 2002 (3) years, you can designate all 8 years for House 2.
If you designate 2000 - 2005 (6 years), you can designate only 5 years for House 2 and you will then get taxed on 3/8 of the gain on House 2 but none for House 1.

As the other poster above mentioned, the main analysis needed is what's your gain/year in each and use your PRE toward the one that gives you the best bang for the buck. But that's really simplifying it as a lot other stuff comes into play. Seek professional advice as only by knowing the full facts can someone truly help you.
Deal Addict
Aug 7, 2003
2845 posts
25 upvotes
Chigu wrote:
Mar 24th, 2010 1:53 pm
If you were living there for more than 1 year and it was your principle residence it is NOT TAXED. There is no tax on the proceeds on the sale of your principle residence regardless of if this is your first home, second home, third home..... etc etc.

If it was an investment property or a cottage or something like that, then there would be capital gains tax.

That 1 year rule is false. You could potentially live in a house for 1 week and then sell it and not claim capital gains, as long as you can prove your intent was for it to be your primary residence. Ie. if someone lost there job and had to sell because they couldnt make the payments, etc.
Sr. Member
Jan 14, 2007
815 posts
12 upvotes
Edmonton
To clarify when you say second house do you mean this is the second house you have owned or was this a vacation house/part time residence?

If it was just your second house as in you owned a previous house, sold it then purchased this "second" house then as others have mentioned it will be exempt.

If it was a second home that you owned at the same time as owning another home then it gets tricky. If you provided a clarification then I think we could provide you with more precise help.
Newbie
Dec 14, 2013
2 posts
I live in the US. In 2001 my late husband and I sold our primary home for a gain. We had a house we bought in 2000. After my husband died I had the house transferred to my name and I have lived in this house for 10 years sequentially. I plan to sell this house and move close to my children. There will be a gain of about $30,000 and I want to know whether I will have to pay capital gains.
Sr. Member
User avatar
Oct 24, 2011
623 posts
179 upvotes
Timmins
Need more info- are you a US/Canadian citizen/resident? Where do you pay taxes? Where is the house located? Are you moving to Canada? What did you do with the house prior to your living in it? Was it a rental property? I don't know anything about US taxes, except that your principal residence is part of your tax return. In Canada it is exempt, but if it was not your PR for a number of years, that particular portion of any gain would be taxable.
Newbie
Dec 14, 2013
2 posts
Thank you for answering promptly. I am a U.S. citizen and am paying U.S. tax. Thia house is located in the U.S. and I have owed this house for 13 years and it was my second home for two (2) years. I have never rent it out and in 2004 I moved in here and have lived here ever since. I don't know whether I will have to pay the capital gains on the $30,000 gain or not. Thank you.
Deal Addict
Aug 30, 2011
3310 posts
1034 upvotes
Ottawa
langhan wrote:
Dec 15th, 2013 3:53 pm
Thank you for answering promptly. I am a U.S. citizen and am paying U.S. tax. This house is located in the U.S. and I have owed this house for 13 years and it was my second home for two (2) years. I have never rent it out and in 2004 I moved in here and have lived here ever since. I don't know whether I will have to pay the capital gains on the $30,000 gain or not. Thank you.
I don't think you'll find any experts on US tax law here on a Canadian forum. Or are you asking about how it would be taxed in Canada?

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