Real Estate

Sell strategy & Tax Implications

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  • Oct 4th, 2020 11:06 am
[OP]
Newbie
User avatar
Dec 10, 2011
64 posts
23 upvotes
Toronto

Sell strategy & Tax Implications

This is the Scenario, a friend of mine currently has a rental property and a principal residence. The rental property is
a detached house is a small town in Ontario. Principal residence is a Condo in Toronto.

He is now considering selling both to move to a bigger house in the GTA. (Although selling just rental should give him enough for downpayment and mortgage room)

Rental Property has gone up 180k in value since purchase 4yrs ago while primary Condo has gone up 280k since purchase during the same period.

Given the current Condo sales cool off and duration of other units unsold in his condo building vs higher demand for detached rentals,
the more likely scenario is that the rental proper will sell first before the detached property.

In this scenario, how does the cap gains work, would he have to pay capital gains on the rental property and again when the condo sells?

1. Sequence: Does the sequence of events affect tax implications?i.e.

a) Sell Rental, Buy New Principal Residence, Sell Condo vs
b) Sell Rental, Sell Condo, Buy new Residence

2. Timing: In terms of taxation year i would assume it would be better to sell rental in 2020 and condo in 2021, rather than both in same year?

I have asked him to talk to his accountant but would like to hear your thoughts on what a good sell strategy would be.
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2 replies
Deal Fanatic
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Sep 14, 2006
8692 posts
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Sounds like a question I had when I did my CPA with the level of detail and structure of the post Face With Tears Of Joy

In a nutshell, one of your friend’s property would have been designated principal residence so it doesn’t matter the sequence in the sale. Given that the rental has gone up less and it’s the rental property, the cap gains would be from the rental property at $180k (50% of it) but it can get more complicated when you start looking at switching between properties as principal residence. If it’s straight forward where the condo was principal the whole time then the calculation is easy. Pay the tax on the rental gains.
Last edited by bobbings on Oct 4th, 2020 2:21 pm, edited 1 time in total.
TEAM CANADA!!!!!!!!!!!
[OP]
Newbie
User avatar
Dec 10, 2011
64 posts
23 upvotes
Toronto
bobbings wrote: Sounds like a question I had when I did my CPA with the level of detail and structure of the post Face With Tears Of Joy

In a nutshell, one of your friend’s property would have been designated principal residence so it doesn’t matter the sequence in the sale. Given that the condo has gone up less and it’s the rental property, the cap gains would be from the rental property at $180k (50% of it) but it can get more complicated when you start looking at switching between properties as principal residence. If it’s straight forward where the condo was principal the whole time then the calculation is easy. Pay the tax on the rental gains.
Face With Tears Of Joy You are right it does sound like an exam question.
As far as i know one was always the rental property and rental income was filed every year for that property. I just wanted to know if the sequence mattered.

Thanks.
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