Real Estate

Tax advice - may have to resell house bought less than 6 months ago

  • Last Updated:
  • Mar 21st, 2019 9:29 pm
[OP]
Member
Sep 24, 2010
278 posts
7 upvotes

Tax advice - may have to resell house bought less than 6 months ago

I sold my Condo in Dec 2018 and bought a house together with my Fiancee. This house is my primary residence but it is not hers yet as she has a condo together with her mum.

Due to some unforeseen circumstances, we may have to sell the house in a couple of months.

Lawyer
- I have talked to the real estate lawyer with whom I bought the house. She said, no legal issues in selling as long as both of us (my fiancee and myself) are willing to sell.

Real Estate Agent
- My agent tells me if I sell before 2 years of staying in this house, I will incur capital gain tax. Even after my fiancee declare this house to be her primary residence instead of her current condo.

Accountant
- I have always done my own taxes so I do not have an accountant I have worked with to turn to.

Questions for you RFD-ers
1) is my agent right?
2) Online tells me, if I sell before 6 months, the buyer may not get mortgage as Banks may see this as money laundering (truth?)
3) Any accountants can chime in? Please ^^
4) what can i do? It is not a must that I sell it but the money is needed for family emergency. I have looked at and exploring 2nd mortgage and renting out a room as other options. If I do have to sell, I will sell and buy maybe a residence; very likely a condo.
27 replies
Sr. Member
Jun 18, 2004
744 posts
125 upvotes
Richmond Hill
There is actually no clear definition in terms of how long you need to reside in a residence to avoid capital gain tax. Let’s just say if you truthfully intend the property as a primary residence from the day you move in to the day you move out, even if it’s 6 months, it’s was still your primary residence and you should not pay any capital gain on it. They will look into several measures: do you own any other properties at the same time? Are you doing this frequently? Is your driver license, health card, employment info, etc using this address? With you it should be fine, with your fiancée, there might be capital gain implication on her portion. It is still best to inquire from a real estate accountant.

Next thing to considered, if you bought a house in fall 2018 I doubt you will incur much gain selling in spring 2019 after all fees, closing costs etc. More like a loss honestly.
Deal Addict
Jan 17, 2006
2041 posts
2094 upvotes
Toronto
Even if it will be the case, how much house appreciated in last 6 months if at all, you only pay capital gain tax on 50% of appreciation.
[OP]
Member
Sep 24, 2010
278 posts
7 upvotes
hiphopforce wrote: There is actually no clear definition in terms of how long you need to reside in a residence to avoid capital gain tax.

I did see 2 years somewhere. Let me see if I can find it again.
hiphopforce wrote: Let’s just say if you truthfully intend the property as a primary residence from the day you move in to the day you move out, even if it’s 6 months, it’s was still your primary residence and you should not pay any capital gain on it. They will look into several measures: do you own any other properties at the same time? Are you doing this frequently? Is your driver license, health card, employment info, etc using this address? With you it should be fine, with your fiancée, there might be capital gain implication on her portion. It is still best to inquire from a real estate accountant.


My 2nd primary residence. I lived in the condo 1 month shy of 2 years.
hiphopforce wrote: Next thing to considered, if you bought a house in fall 2018 I doubt you will incur much gain selling in spring 2019 after all fees, closing costs etc. More like a loss honestly.
Hm, this is my concern. We bought an old house, did a lot of renovations ourselves; painting, doing my own flooring (main floor and basement), upgrade washroom (this done with contractor). My agent is pretty sure I can sell for about 100k higher easily though of course, it ultimately depends on the buyer.

Thanks for the input.

Basically, I guess I get the idea that, nothing will really prevent me from doing it without much draw back. I need more opinions and ideas.
Deal Addict
Aug 30, 2011
3457 posts
1215 upvotes
Ottawa
Hiphopforce is right. Your agent is wrong, there is no 2-year rule.
Deal Addict
Feb 5, 2009
2809 posts
928 upvotes
Newmarket
You already have received proper advise in this thread regarding the capital gains, your agent is wrong.

The intent is important, however even if the intent was truthfully to have it as a primary residence you may still have a hard time proving it to cra if they ask. You bought it, renovated and trying to sell, that sounds like a typical flip. Let's say someone is in military and few months after they get reallocated to another province and are now selling the property, the intent will be very easy to prove in favour of the tax payer, in your case based on what you have described it will be much harder.
If your principal residence status is rejected cra may actually designate the profits as income not capital gains, taxing flippers has been something they are trying to clamp on over the recent years.

Before you worry about paying taxes I would actually add up all the expenses you put into renovations, costs of buying and selling, land transfer tax and so on, and see if you have really made a profit. If you have made $100K in a slow market in few months you are genius. Congratulations. Even if you have to pay tax you are still way ahead of the game.
Deal Addict
Jan 15, 2017
3436 posts
2782 upvotes
swknight wrote: ....
Hm, this is my concern. We bought an old house, did a lot of renovations ourselves; painting, doing my own flooring (main floor and basement), upgrade washroom (this done with contractor). My agent is pretty sure I can sell for about 100k higher easily though of course, it ultimately depends on the buyer.

....

Basically, I guess I get the idea that, nothing will really prevent me from doing it without much draw back. I need more opinions and ideas.
Looks like a flip to me. I'd be very cautious here as if Revenue decides that it is a flip, you will be deemed to be in a business and will pay business tax on your profits based on your marginal rate.

There is nothing legally to prevent you from selling the house. You just need to know the financial consequences of selling it. For this, you need expert advice. Your Realtor gave you very poor advice. Your Realtor is not a trained and qualified tax expert and the advice they gave demonstrated a lack of professionalism. Fire this Realtor. Do not ever use them again. Your Realtor should have advised you to seek professional advice from a tax expert as there may be tax implications.

Given your personal situation of joint owners with several properties, plus the fact that you bought a home and immediately undertook extensive renovations and that it may be considered a flip if sold quickly - I'd suggest you discuss this with a tax expert. The tax expert will look at your entire situation and provide you with a risk analysis.
Deal Fanatic
Jul 3, 2011
5768 posts
2925 upvotes
Thornhill
As a couple others noted a decision the CRA will decide whether your intent was to flip or not. Circumstances change and you'll have to provide proof to support any position that it was not your intent to flip.

It's not too difficult to prove with documentary evidence.

Out of curiosity:

How long did you own the condo before selling it? this will go toward showing if you're a speculator.

What is the mortgage term you took out on the house? this will go toward showing long term intent.

Do you have documentary evidence that due to a change in financial position you need to sell the house? this will go toward showing your initial intentions were changed outside of your control

Is the place you will live in after you sell the house a rental, a purchase? your fiancees? this will go toward proving or disproving your financial situation

Did your Realtor advise you about the possible capital gains and the 2 year term before your purchased? during renos? is it in writing? this will go to show what your actual plan for the property was.
Deal Addict
Jul 3, 2007
2663 posts
2797 upvotes
Toronto
OttawaGardener wrote: Hiphopforce is right. Your agent is wrong, there is no 2-year rule.
this just proves how many uneducated realtors are out there misinforming clients every day.....unbelievable
Deal Addict
Dec 6, 2006
4882 posts
1328 upvotes
Toronto
Just started filing tax last night and was looking at the property selling and primary residence declare, which is now mandatory on the income tax file.
At least on paper, it allows the number of acquisition years to be at most 1 year more than the number of years you had the property as primary residence for it to be by default capital gain (and loss) exempted when selling.
Deal Guru
User avatar
Mar 23, 2008
11348 posts
7655 upvotes
Edmonton
swknight wrote: I sold my Condo in Dec 2018 and bought a house together with my Fiancee. This house is my primary residence but it is not hers yet as she has a condo together with her mum.

Due to some unforeseen circumstances, we may have to sell the house in a couple of months.

Lawyer
- I have talked to the real estate lawyer with whom I bought the house. She said, no legal issues in selling as long as both of us (my fiancee and myself) are willing to sell.

Real Estate Agent
- My agent tells me if I sell before 2 years of staying in this house, I will incur capital gain tax. Even after my fiancee declare this house to be her primary residence instead of her current condo.

Accountant
- I have always done my own taxes so I do not have an accountant I have worked with to turn to.

Questions for you RFD-ers
1) is my agent right?
2) Online tells me, if I sell before 6 months, the buyer may not get mortgage as Banks may see this as money laundering (truth?)
3) Any accountants can chime in? Please ^^
4) what can i do? It is not a must that I sell it but the money is needed for family emergency. I have looked at and exploring 2nd mortgage and renting out a room as other options. If I do have to sell, I will sell and buy maybe a residence; very likely a condo.
You may not have an accountant yet, but when you’re talking about potential capital gains of 100k, it would be worthwhile to invest in one now. Free advice is worth every penny you paid, unfortunately...

C
Jr. Member
Oct 27, 2018
123 posts
52 upvotes
swknight wrote: I did see 2 years somewhere. Let me see if I can find it again.




My 2nd primary residence. I lived in the condo 1 month shy of 2 years.

Hm, this is my concern. We bought an old house, did a lot of renovations ourselves; painting, doing my own flooring (main floor and basement), upgrade washroom (this done with contractor). My agent is pretty sure I can sell for about 100k higher easily though of course, it ultimately depends on the buyer.

Thanks for the input.

Basically, I guess I get the idea that, nothing will really prevent me from doing it without much draw back. I need more opinions and ideas.
This 100k appreciation is net of what you spent improving the house plus other costs? You will also need increase your cost of house by adding lawyer fees, agent commission at sell, land transfer tax paid and other closing and purchasing cost. When you net all these costs against $100k, it may not be that Significant.
Deal Fanatic
User avatar
Feb 2, 2014
8242 posts
2309 upvotes
Toronto
swknight wrote: I sold my Condo in Dec 2018 and bought a house together with my Fiancee. This house is my primary residence but it is not hers yet as she has a condo together with her mum.

Due to some unforeseen circumstances, we may have to sell the house in a couple of months.

Lawyer
- I have talked to the real estate lawyer with whom I bought the house. She said, no legal issues in selling as long as both of us (my fiancee and myself) are willing to sell.

Real Estate Agent
- My agent tells me if I sell before 2 years of staying in this house, I will incur capital gain tax. Even after my fiancee declare this house to be her primary residence instead of her current condo.

Accountant
- I have always done my own taxes so I do not have an accountant I have worked with to turn to.

Questions for you RFD-ers
1) is my agent right?
2) Online tells me, if I sell before 6 months, the buyer may not get mortgage as Banks may see this as money laundering (truth?)
3) Any accountants can chime in? Please ^^
4) what can i do? It is not a must that I sell it but the money is needed for family emergency. I have looked at and exploring 2nd mortgage and renting out a room as other options. If I do have to sell, I will sell and buy maybe a residence; very likely a condo.
There is no truth to any of this.

As already mentioned, there is no stated time period. When you do your taxes, state you sold your primary residence. IF you get flagged by the CRA, then you may need to proof that this property was not meant solely for an investment.

As for the mortgage, no that's not correct. The buyer can certainly get financing even though you didn't hold on to it for long.

If you are thinking of selling simply because you need cash, you can refinance, get a HELOC or get a 2nd mortgage (assuming you have equity in the property).
Kevin Somnauth, CFA
Principal Broker - First Toronto Mortgage - MA (Ontario #13176, BC #X301007)
Real Estate Salesperson - Century 21 Innovative
Deal Addict
Aug 30, 2011
3457 posts
1215 upvotes
Ottawa
CdnRealEstateGuy wrote: There is no truth to any of this.

As already mentioned, there is no stated time period. When you do your taxes, state you sold your primary residence. IF you get flagged by the CRA, then you may need to proof that this property was not meant solely for an investment.

As for the mortgage, no that's not correct. The buyer can certainly get financing even though you didn't hold on to it for long.

If you are thinking of selling simply because you need cash, you can refinance, get a HELOC or get a 2nd mortgage (assuming you have equity in the property).
I don't think this is an appropriate answer. It either IS or IS NOT his principal residence, and he should be sure before proceeding.
Deal Fanatic
User avatar
Feb 2, 2014
8242 posts
2309 upvotes
Toronto
OttawaGardener wrote: I don't think this is an appropriate answer. It either IS or IS NOT his principal residence, and he should be sure before proceeding.
I think you misunderstood my post.

OP is saying the property IS his principal residence and did not buy it for investment purposes. So when he does his taxes, he just declares this. Of course the CRA may flag him, so he will need to prove it to them if that occurs.

I am not saying OP should put it as his principal residence knowing there is an investment component to it. Based off his post, it sounds like he upgraded to a house (from a condo) and is now having some cash issues.
Kevin Somnauth, CFA
Principal Broker - First Toronto Mortgage - MA (Ontario #13176, BC #X301007)
Real Estate Salesperson - Century 21 Innovative

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