Any issues with selling a brand new house.

[Mangina]

Long story short, I'm almost finished building a brand new house but I've decided I don't want to live in it. Are they any issues involved with me selling it without ever living in it? Paying taxes or whatever? It's probably gained between $40-60K in value since the papers were signed.

[rage2]

Capital gains tax.

[shakalaka]

You avoid the capital gains tax, if the money you make is off your primary residence, but since this is not the case here, you will most likely have to pay the CGT.

[cdnsir]

Hold it for 6 mths from the time of procession and you can "claim" it as your primary residence.

That 6mth rule is there to prevent ppl from flipping... Otherwise, you will have to pay the applicable taxes if you were to sell right now.

[thrasher22]

Originally posted by cdnsir
That 6mth rule is there to prevent ppl from flipping... Otherwise, you will have to pay the applicable taxes if you were to sell right now.
Not so much to prevent, as to weed out those who are running it like a business.

[Mangina]

I guess I could have put this in the real estate forum. Do you think I'd get away with it if I only do it once?

[benyl]

There is no such thing as the 6 month rule. hahahahah, I love when people make shit up.

You could probably get away with it 10 times.

The only issue is that when they audit you within the next 7 years and ask you where the money came from, you will have to disclose.

Then they charge you a penalty and interest and decide if they want to send you to jail.

If you are making $40K on the house, you will pay $10K in tax at the most for CGT. It could be lower if your income is lower.

[rage2]

Talk to your accountant. If he's comfortable in doing that for you, then go right ahead. Just remember that you'll get burned if you ever get reassessed. On $60k, depending on your tax bracket, you'll save 10-15k in taxes, but if you get re-assessed, you'll prob end up paying 40k in back taxes, fines, interest, etc.

[rage2]

Originally posted by benyl
There is no such thing as the 6 month rule. hahahahah, I love when people make shit up.

You could probably get away with it 10 times.

The only issue is that when they audit you within the next 7 years and ask you where the money came from, you will have to disclose.

Then they charge you a penalty and interest and decide if they want to send you to jail.

If you are making $40K on the house, you will pay $10K in tax at the most for CGT. It could be lower if your income is lower.
haha damn beat me to it, I was guessing $10-15k on cgt. Very doubtful you'll get jailtime, my books for my old business was in such shitty shape I got dinged for $65k in back taxes and penalties 6 years after the fact (who keeps track of that shit for that long anyways lol). Jail for taxes really only happen if you're in the states fighting the IRS.

[clem24]

AFAIK, you just need to live in it for 1 day. Designate it as your principal residence. What they are trying to stop is people flipping a bunch of houses often. Then they see it as a business and will want to tax you. But if you've never done it before and don't plan on doing it again soon, you're probably more than ok.

The smarter thing to do is to ask someone privately and not post on here. I think CRA pays for tips.. :D

[benyl]

The 1 day thing only works if you don't own another home at the same time. Also, you can't move out of your parents house, then into the new one for a day and then back to your parents house. They will figure out what is up.

The 1 day works if you build 2 new houses and sell your old house (move out). Move into one house for a day, then sell it and move into the next house.

[irs]

Does anyone have any information to back up what they are saying?
I have beening thinking about the same thing for 2 years now.
That is how long it has taken the company to build my new house.

I want to sell house out in chestermere and move inner city.
Nect week I get possession of the new house.

[Altezza]

Oh man...people are asking for trouble if they think a 6-month rule exists, LOL.

CRA will have fun with you 5 years down the road when they re-asses you, fine you, and tack on interest for all of the years prior.

[rage2]

Originally posted by irs
Does anyone have any information to back up what they are saying?
Yep.

http://forums.beyond.ca/st/182189/taxes-on-selling-a-second-house/

There's links to the CRA website with details, as well as first hand experience from ppl that's been audited trying the same thing.

[clem24]

From what I know, you can designate ANY of your properties as your principal residence. So you need to take ownership of it first (i.e. pay the money to the builder, get house in your name).

Now, having said that, I revisited tax rules. The principal residence exemption is determined by the formula:

Gain - [Gain x (1+years designated as principal) / years owned]

I am getting a division by 0 here since he owned it 0 years, haha. Maybe call CRA... From a pay phone.

Or read about it here. It's fairly easy to follow.

http://www.cra-arc.gc.ca/E/pub/tp/it120r6/it120r6-e.html

[Mangina]

Yeah, it's kind of a weird situation. I'm in a condo that I'm going to sell, then I'm going to sell a brand new house, and then likely buy an older house. So I'll be selling the condo, and the new house basically one right after the other.

So in theory, if I sell my condo, move into the new house, and list it and hopefully sell right away, then buy a new (used) house and move in, I'm technically not breaking the law if I don't pay any capital gains tax? :drama:

[BrknFngrs]

A full explanation of the above is in the thread rage linked to along with a discussion about designating a place as a principal residence, check that out as that thread actually provided information supported by reality.

[cdnsir]

HOLY CRAP! I held a townhouse from out of a Friend and Family myth!!!

Oh well... it grew like 20k over my "holding period" LOL, so it's not all bad. I went to the cra site, you're right, nothing said about the time u need to spend there. You just have to designated one Primary Residence PER HOUSEHOLD. For those ppl who are too lazy to read the cra stuff... here's something reliable from msn finance.

http://finance.sympatico.msn.ca/investing/gordonpape/article.aspx?cp-documentid=4927434



Built too much house

Q - My wife and I made a decision to build a new custom house in August 2005, when we put a non-refundable deposit on a lot. It took a very long time to come up with final plans and along the way we received updated estimates on the purchase price. The builder grossly underestimated the cost of building the house, not just due to the rapidly shifting Calgary economy but more due to the unique nature of the lot we are building on. When we received the final estimate and it came time to sign the Purchase Agreement in May 2006, we went ahead with it as we would otherwise have lost our lot deposit, a significant amount of money.
The house will be ready this summer, almost two years since we began the process. It is far bigger than we need, especially given that our oldest daughter will be going away to school next year. It will also be more than we can afford and we don't relish being house poor at this point in our lives.
All this to say that we are inclined to stay where we are at and put the new house on the market when we take possession. A very conservative estimate would be that it is worth about $300,000 more than our total investment, possibly as much as $600,000 if the market is still good in the summer. Here are my questions:
1. If we sell, would this be considered as income or capital gain? We have never done this type of thing before, so it is not as if we earn an income buying and selling houses.
2. If capital gain, how much tax would we pay on that amount, let's say $300,000?
3. Is there any way to avoid capital gain? For example, if we did move in for a short time then put the house up for sale, what is the minimal time required before it would be considered our primary residence so that we could avoid the capital gain? I have "heard" six months and I have "heard" one year, but cannot find it in writing anywhere. Moving in for six months or a year, then selling and moving again, would be disruptive but is a consideration, depending on the end value of moving twice. – Doug M.

A – If you stay put and sell the new house, you will have to pay capital gains tax on the proceeds as it would not be a principal residence. Only half the gain is taxable so you would be assessed on $150,000 at your marginal rate. If it is 40%, you'll owe $60,000 in tax.
If you move into the property, you can designate it as your principal residence immediately. Use Form T2091(IND) for this purpose. To my knowledge, there is no minimal amount of time for occupying the home before selling once this has been done. For more detailed information, see CRA Interpretation Bulletin IT-120R6 Principal Residence. It can be downloaded at http://www.cra-arc.gc.ca/E/pub/tp/it120r6/it120r6-e.html#P80_10811 - G.P.

[irs]

What happens if the new house is our only house and primary house. Then sell it.
Do you have to pay capital gains.

[BrknFngrs]

Originally posted by cdnsir
Snip...

He does not address the capital gains after declaration as a principle residence (and the process for assessing them has been given above already, as well as in the link), this is NOT a full answer, read the legislation that has been linked.


Originally posted by irs
What happens if the new house is our only house and primary house. Then sell it.
Do you have to pay capital gains.

Just look at the equation posted above, that lays out what portion of a gain can be sheltered due to it being a principle residence.