Real Estate

Severing principal residence

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  • Jul 23rd, 2020 3:26 pm
Feb 18, 2012
55 posts

Severing principal residence

I was hoping someone could shed some light on whether someone would have to pay capital gains tax if they were to buy a home... Live in that home for a year... Sever the property to create a single second lot.. Then sell that second vacant lot.

Would the sale of that second lot be free of tax as it was part of the principal residence? The overall land is under the 1.25 acre limit.
2 replies
Deal Addict
Mar 2, 2017
3240 posts
You will have to double check with a tax accountant, but in your case I believe you will have to pay capital gains (someone correct me if I am wrong here)

Reason being is that if you sever the lot with a new address while you still reside at the original address, you will in effect still have a principal residence elected under your name, you cannot elect both to be principal residences.

What people generally do in these situations (at least clients I've worked with) is they sever a lot and build two new homes. They sell the new home with the original address as that's their elected principal residence and then move into the second new home on the new lot, live there for a year, sell that w/o cap gains as that's their new principal residence since the sale of the home on the original address.

Double check this, but that's how I remember it playing out.
RE Broker


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