Income tax when selling a rental property

[88CRX]

Bought a townhouse back in 2009 for $300k, lived there for 3 years (when I moved out it was worth $270k maybe) and have now rented if out for the past 1.5 years (and I'd say its worth $300-310k now).

If/when I go to sell it what are the implicatation of the value of the propery or will the CRA only look at purchase price and sold price?

Also to clarify I would only be on the hook for paying income tax on 50% of the gained value, correct?

[Manhattan]

You should have filed some paperwork when you moved out to change the use from principal residence to investment property. You should only need to pay capital gains on the change in value since you've moved out. Strange situation because value was lower when you moved than what you paid...maybe speak to someone at H&R block.

[msommers]

Talk to a real accountant. While not everyone at H&R et al. are idiots, sometimes I have to wonder.

Even one further, just phone the CRA and ask directly. I've found them super helpful.

[Z_Fan]

Originally posted by 88CRX
Bought a townhouse back in 2009 for $300k, lived there for 3 years (when I moved out it was worth $270k maybe) and have now rented if out for the past 1.5 years (and I'd say its worth $300-310k now).

If/when I go to sell it what are the implicatation of the value of the propery or will the CRA only look at purchase price and sold price?

Also to clarify I would only be on the hook for paying income tax on 50% of the gained value, correct?

Unfortunately for you, the CRA basically considers you to have sold and bought the property on the same day that you changed its use from principal residence to rental.

In your situation, you'd be looking at a fair market value of $270k when you changed its use. If the FMV today is $310k then you'd be on the hook for paying tax on the $40k as that is your capital gain. Well, you'll be looking capital gains on whatever the actual sale price is when sold less fair market value when you changed to renting it.

They don't care what you originally paid for it. Just sucks for you that it was higher than what it was when you changed its usage.

Based on your situation there, I'd probably keep the rental property as the tax hit looks to be unfortunate.

[TomcoPDR]

It sounds like it was OP's primary residence from 2009-2013. Don't think those periods are subject to capital gains

[ExtraSlow]

I'm not any kind of expert on this, but can't he write-off the expenses incurred when selling, like Realtor fees, lawyer fees etc? That'll eat up a lot of that capital gain.
Also, capital gains are taxed at only 50% of your marginal tax rate.
Tax should be around $4k on that $40k you "made" since the use changed. Am I looking at this right?

[88CRX]

Yea I'm not really looking to sell. Just did my taxes and I owe (yaaaa tax man!) so I started reading up. How does the cra determine property value? My guess of $270k is just that, a guess.

Also I never filed anything specific to change the use, should I have?

[88CRX]

Originally posted by TomcoPDR
It sounds like it was OP's primary residence from 2009-2013. Don't think those periods are subject to capital gains

Correct it was. Except during that time period it dropped in value.

[JordanLotoski]

You Pay Captial gains on profit-expenses @ 50% of your tax rate

Sounds like you would be at a loss after, realtor and legal fees.

[JordanLotoski]

Originally posted by JordanLotoski
You Pay Captial gains on profit-expenses @ 50% of your tax rate

Sounds like you would be at a loss after, realtor and legal fees.

Your accountant should also be calculating your taxes with that as a rental, if you have a capital gain each month you will owe a few bucks on that property.