Capital Gain on Preconstruction

Feb 15th, 2018 4:34 pm

#1

jdu0ng [OP]: Deal Addict; Feb 9, 2013; 1808 posts; 776 upvotes; Mississauga

Feb 15th, 2018 4:34 pm

Hi I have a condo that's about to close. It was purchased 4 years ago for $400k, and is now worth $650k approximate.
If I make this my primary resident, then I don't have to pay for the capital gain appreciation when I sell.
However, if I make it as an investment property, do I have to pay the tax for capital gain of ($650k - $400k) = $250k during the construction of it?

Let's say after 5 years I plan on selling it.

Scenario 1: after close I live in it for 1 year, then rent it out for 4 years
Scenario 2: after close rent it out immediately for 4 years, then live it in for 1 year

I understand the years I rent it out I have to pay tax. But not sure how the $250k is taxable or not.

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Feb 15th, 2018 4:48 pm

#2

Applesmack: Deal Addict; Dec 23, 2010; 1897 posts; 929 upvotes; Moon

Feb 15th, 2018 4:48 pm

From what I understand most builders give you a price based on the fact you will occupy the unit for personal use. This is what gives you that HST discount and this clause would be in your purchase agreement. Thus Scenario 1 would mean that all appreciation that occurred while the unit was being constructed is not taxable. Scenario 2 is likely against your purchase agreement.

Last edited by Applesmack on Feb 15th, 2018 4:48 pm, edited 1 time in total.

Feb 15th, 2018 4:48 pm

#3

Luckyinfil: Penalty Box; Aug 11, 2005; 4175 posts; 1427 upvotes

Feb 15th, 2018 4:48 pm

Do people not research b fore they buy?

Or do they just blindly buy real estate cuz it gots to go up to da moooon?

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+1

Feb 15th, 2018 4:49 pm

#4

Applesmack: Deal Addict; Dec 23, 2010; 1897 posts; 929 upvotes; Moon

Feb 15th, 2018 4:49 pm

Luckyinfil wrote: ↑ Do people not research b fore they buy?

Or do they just blindly buy real estate cuz it gots to go up to da moooon?

Anything is better than being a priced out renter so people tend to buy pretty fast.

+2

Feb 15th, 2018 4:53 pm

#5

Luckyinfil: Penalty Box; Aug 11, 2005; 4175 posts; 1427 upvotes

Feb 15th, 2018 4:53 pm

Applesmack wrote: ↑ Anything is better than being a priced out renter so people tend to buy pretty fast.

U forgot to mention to the mooooon.

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+1

Feb 15th, 2018 4:54 pm

#6

Luckyinfil: Penalty Box; Aug 11, 2005; 4175 posts; 1427 upvotes

Feb 15th, 2018 4:54 pm

But you may be too busy being house poor

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+1

Feb 15th, 2018 5:00 pm

#7

Luckyinfil: Penalty Box; Aug 11, 2005; 4175 posts; 1427 upvotes

Feb 15th, 2018 5:00 pm

Too da mooonnn

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+1

Feb 15th, 2018 5:03 pm

#8

dpacto: Member; Mar 6, 2017; 382 posts; 259 upvotes

Feb 15th, 2018 5:03 pm

jdu0ng wrote: ↑ Hi I have a condo that's about to close. It was purchased 4 years ago for $400k, and is now worth $650k approximate.
If I make this my primary resident, then I don't have to pay for the capital gain appreciation when I sell.
However, if I make it as an investment property, do I have to pay the tax for capital gain of ($650k - $400k) = $250k during the construction of it?

Let's say after 5 years I plan on selling it.

Scenario 1: after close I live in it for 1 year, then rent it out for 4 years
Scenario 2: after close rent it out immediately for 4 years, then live it in for 1 year

I understand the years I rent it out I have to pay tax. But not sure how the $250k is taxable or not.

If you live in it you don't have to pay anything when you sell

if you you sell it right away you will have to pay capital gains and the HST portion

if you rent it out first you will have to pay the HST up front and then apply for the HST rental rebate and then you have to pay capital gains when you sell

You can deduct certain expenses related to closing costs to offset some of the capital gains but you definitely need to speak with an accountant who has experience dealing with investment property especially new construction

Feb 15th, 2018 5:06 pm

#9

Mitts87: Member; Apr 29, 2017; 281 posts; 94 upvotes

Feb 15th, 2018 5:06 pm

Luckyinfil wrote: ↑ Too da mooonnn

At least they Won't have to pay any tax

+2

Feb 15th, 2018 5:07 pm

#10

Applesmack: Deal Addict; Dec 23, 2010; 1897 posts; 929 upvotes; Moon

Feb 15th, 2018 5:07 pm

Mitts87 wrote: ↑ At least they Won't have to pay any tax

Nobody flips a principal residence like that so that is a HUGE capital loss the investor will be able to use for years to come.

Feb 15th, 2018 5:19 pm

#11

jdu0ng [OP]: Deal Addict; Feb 9, 2013; 1808 posts; 776 upvotes; Mississauga

Feb 15th, 2018 5:19 pm

Luckyinfil wrote: ↑ Too da mooonnn

TBH the sellers probably don't care about 500k loss. What's more important is that they washed their "dirty" money and made $1.8M clean money. And please stop hijacking my threads!

+1

Feb 15th, 2018 5:26 pm

#12

Luckyinfil: Penalty Box; Aug 11, 2005; 4175 posts; 1427 upvotes

Feb 15th, 2018 5:26 pm

Applesmack wrote: ↑ Nobody flips a principal residence like that so that is a HUGE capital loss the investor will be able to use for years to come.

Can’t claim capital loss if you aren’t a Canadian resident

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Feb 15th, 2018 5:36 pm

#13

Delilah14: Jr. Member; Aug 24, 2010; 128 posts; 124 upvotes

Feb 15th, 2018 5:36 pm

Luckyinfil wrote: ↑ Too da mooonnn

What’s the point of your post? The OP made a huge profit in 4 years. I wish i put my savings in to a pre con condo than maxing out our TFSA’s. (never thought condos would go up)

Feb 17th, 2018 1:08 pm

#14

mazerbeaner: Deal Guru; Feb 22, 2011; 10471 posts; 12990 upvotes; Toronto

Feb 17th, 2018 1:08 pm

Delilah14 wrote: ↑ What’s the point of your post? The OP made a huge profit in 4 years. I wish i put my savings in to a pre con condo than maxing out our TFSA’s. (never thought condos would go up)

If you check his post history he's been really angry that he can't afford a property since 2013. He's become jaded and obsessed. Just imagine what kind of person spends their entire day in a forum about an asset class they know they will never invest in. That's like me spending hours every day for half a decade in the bitcoin thread trying to convince others not to buy bitcoin, makes no sense.

Feb 17th, 2018 1:18 pm

#15

Sanyo: Deal Guru; Feb 9, 2009; 11290 posts; 9796 upvotes

Feb 17th, 2018 1:18 pm

Congrats on the appreciation. A guy like luckyinfil could have bought 4 years ago and made gainsss but instead was too busy making threads about re crashing.

Feb 17th, 2018 3:03 pm

#16

SamS2016: Newbie; Jun 28, 2016; 55 posts; 20 upvotes

Feb 17th, 2018 3:03 pm

Luckyinfil wrote: ↑ Too da mooonnn

looks like a sore loser ... the previous sale did not go through...

+1

Feb 17th, 2018 5:02 pm

#17

Luckyinfil: Penalty Box; Aug 11, 2005; 4175 posts; 1427 upvotes

Feb 17th, 2018 5:02 pm

Sanyo wrote: ↑ Congrats on the appreciation. A guy like luckyinfil could have bought 4 years ago and made gainsss but instead was too busy making threads about re crashing.

Why do they have to be mutually exclusive?

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Feb 18th, 2018 12:14 am

#18

Delilah14: Jr. Member; Aug 24, 2010; 128 posts; 124 upvotes

Feb 18th, 2018 12:14 am

rjg4235 wrote: ↑ If you check his post history he's been really angry that he can't afford a property since 2013. He's become jaded and obsessed. Just imagine what kind of person spends their entire day in a forum about an asset class they know they will never invest in. That's like me spending hours every day for half a decade in the bitcoin thread trying to convince others not to buy bitcoin, makes no sense.

Ok that makes sense. I also got the fact that he works for Wynne bag, which explains a lot as to why he has so much time to waste on these online forums

because obviously she and her clan don’t really do any real work

Feb 18th, 2018 8:17 pm

#19

mazerbeaner: Deal Guru; Feb 22, 2011; 10471 posts; 12990 upvotes; Toronto

Feb 18th, 2018 8:17 pm

SamS2016 wrote: ↑ looks like a sore loser ... the previous sale did not go through...

He's laughing a house in the suburbs "only" sold for $1.8m, he posted previously that he would never be able to afford a house for $750k in Markham. 5 years later he's still posting lol.

Feb 18th, 2018 10:09 pm

#20

BiegeToyota: Deal Addict; Dec 13, 2016; 3756 posts; 3257 upvotes

Feb 18th, 2018 10:09 pm

With all the money these renters made on Bitcoin they could easily afford 2-3 mil dolla houses.