Real Estate

Selling Rental Property of 2+ years

  • Last Updated:
  • Jul 31st, 2020 7:26 am
[OP]
Newbie
May 16, 2016
62 posts
180 upvotes

Selling Rental Property of 2+ years

So we are selling a rental property we have owned for just over 2 years.
We will make before commissions and fees 127k.

Besides all the deductions of commissions, bank charges, legal fees...

What can be done to reduce or avoid the capital gains on the difference.

In the USA one can reinvest into those gains in a property and defer payment of gains...
To my knowledge this is not possible in Canada,

But are there tricks to the trade?

It is not a primary, I have not lived in it for any period, it is solely in my name.
9 replies
Deal Addict
Feb 19, 2019
1700 posts
2612 upvotes
Stouffville ON
It's a capital gain, it has never been your principal residence and there are no elections that I know of to be made since you have never occupied it.
Full Time and Full Service Realtor
Sr. Member
Oct 22, 2016
877 posts
795 upvotes
Comox Valley
RenilynV670198 wrote:

In the USA one can reinvest into those gains in a property and defer payment of gains...
To my knowledge this is not possible in Canada,
Some news reports state that might change in the USA if Biden gets elected.

In the future, depending on how young you are, you might want to look into a bare trust
https://www.investopedia.com/terms/b/bare-trust.asp
I have used them on various rental properties, and worked well for me using a limited company to retain these profits, and pay out to me in a more suitable timetable. BUT talk to an accountant about that, and tax rules may be more strict due to the debt our governments have.

Congratulations on the profit, good on you.
[OP]
Newbie
May 16, 2016
62 posts
180 upvotes
User452441 wrote: Some news reports state that might change in the USA if Biden gets elected.

In the future, depending on how young you are, you might want to look into a bare trust
https://www.investopedia.com/terms/b/bare-trust.asp
I have used them on various rental properties, and worked well for me using a limited company to retain these profits, and pay out to me in a more suitable timetable. BUT talk to an accountant about that, and tax rules may be more strict due to the debt our governments have.

Congratulations on the profit, good on you.
young enough I believe it would apply. 35. Plenty of time to make future purchases.

thanks on the congratulations.

all the best.
Deal Addict
Aug 28, 2010
1275 posts
329 upvotes
Toronto
my plan was to move into my rental as a primary for a few years to reduce the capital gains i would have to pay. Ill need to consult a tax professional.
Deal Guru
Feb 22, 2011
11836 posts
15247 upvotes
Toronto
You only pay tax on half the gain, you could offset it by dumping a lot in your RRSP if you have room.
Deal Addict
Feb 19, 2019
1700 posts
2612 upvotes
Stouffville ON
porchemasi wrote: my plan was to move into my rental as a primary for a few years to reduce the capital gains i would have to pay. Ill need to consult a tax professional.
Good idea.
If you didn't have another principal residence during that time you want to look into elections 45(2) or 45(3) to see if you meet the criteria and if it benefits you.
Full Time and Full Service Realtor
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User avatar
Jan 2, 2012
4344 posts
2444 upvotes
Toronto
porchemasi wrote: my plan was to move into my rental as a primary for a few years to reduce the capital gains i would have to pay. Ill need to consult a tax professional.
How would that reduce the capital gains? You would still owe the capital gains for all the time it was a rental until the date you took over as a principal residence. You would only get tax exemption on gains starting from the date it was your principal residence.
The only way you could potentially lower capital gains when you sell is if you got an assessment of the home lower than market value at the time it became principal residence.
Member
Dec 8, 2008
466 posts
240 upvotes
sircheersa wrote: You only pay tax on half the gain, you could offset it by dumping a lot in your RRSP if you have room.
So basically, let's say you earn $100,000 yearly income.
You make $100,000 in capital gain, of which 50% in taxable (ie. $50,000).
Therefore, your total amount taxable for this year is $150,000, and the amount of tax is based on the marginal rate tax bracket (somewhere around 27%).

To offset this and lower your tax bracket, you should maximize your RRSP contribution room. So say you have $50,000 in RRSP contribution room, you dump $50,000 into it and now your total amount taxable for the year is back to $100,000.

When it comes to retirement, your RRSP is now taxable income and will be subject to whichever marginal rate you're at.

Am I understanding this correctly?

Thanks!
Deal Guru
Feb 22, 2011
11836 posts
15247 upvotes
Toronto
aiz_324 wrote: So basically, let's say you earn $100,000 yearly income.
You make $100,000 in capital gain, of which 50% in taxable (ie. $50,000).
Therefore, your total amount taxable for this year is $150,000, and the amount of tax is based on the marginal rate tax bracket (somewhere around 27%).

To offset this and lower your tax bracket, you should maximize your RRSP contribution room. So say you have $50,000 in RRSP contribution room, you dump $50,000 into it and now your total amount taxable for the year is back to $100,000.

When it comes to retirement, your RRSP is now taxable income and will be subject to whichever marginal rate you're at.

Am I understanding this correctly?

Thanks!
Yes that is exactly correct

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