Advice on Real Estate

[Jawbone Hill]

ken0042, just to follow up on your comment regarding landlords. We're currently not under a contract, as our lease expired in August and we're currently month to month. I'm guessing that 90 day notice doesn't apply, but if you have information to the contrary I'd love to hear it!

[Cowboy89]

Originally Posted by jinxx123

In terms of capital gains, I've talked to my brother in law who is an accountant and has taken tax courses fairly recently, and he explained it to me this way...
- One Bedroom Condo (bought but unfinished) = Condo A
- Two Bedroom Condo (that we are renting now, hoping to buy) = Condo B

In year 1, we purchase Condo B while waiting for possession of Condo A.
In year 2, we take possession of and sell condo A.
In year 5 (way down the road) we sell Condo B.

In year 1,3,4 & 5 we list Condo B as our primary residence (no secondary residence). In year 2, we list condo A as our primary residence, with condo B as our secondary residence.

From how he explained it to me, we would be taxed on the capital gain of condo B for 1 of 5 years, which is much better than being taxes on the entire gain of condo A.

Hopefully this makes sense... both my dad and I had to listen to him explain it twice before we could make sense of it. Logistically it makes sense, but when has Revenue Canada relied on logic?

As an aside, capital gains tax is a really frustrating tax! We didn't do this to try and make a quick buck - we did this so that we'd have a place to live in Calgary that we could afford. So, on a certain level why should I be penalized when all I want to do is reinvest in a place where I can actually afford to have a family? Sorry... little rant...

Thanks for all the advice guys... this is great stuff!

You're absoulutely right!

[Bobblehead]

Originally Posted by Nikki

Do you have to live in it for a full year to avoid paying the tax?

You don't need to live in it for a year, but you must have lived in it in the year.

A property qualifies as your principal residence for any year if it meets the following four conditions:

• it is a housing unit, a leasehold interest in a housing unit, or a share of the capital stock of a co-operative housing corporation you acquire only to get the right to inhabit a housing unit owned by that corporation;
• you own the property alone or jointly with another person;
• you, your current or former spouse or common-law partner, or any of your children lived in it at some time during the year; and
• you designate the property as your principal residence.

CRA

[Jawbone Hill]

I have no problem living there for a month or so if it means I can afford capital gains tax on six figures!

Is it just me, or is it unbelievable how much real estate in Calgary has boomed in the last two years? I was talking to a friend at work who bought a house in Kincora a few years ago, and she remembers being blown away that the house cost over $200,000!!! Ahhh.... the good old days.

[ken0042]

Originally Posted by jinxx123

ken0042, just to follow up on your comment regarding landlords. We're currently not under a contract, as our lease expired in August and we're currently month to month. I'm guessing that 90 day notice doesn't apply, but if you have information to the contrary I'd love to hear it!

Actually it does apply. I can't find the link right now, but the bottom line is normally they have to give you 90 days notice.

Here's the link for the 1 year that applies more to your case though:
http://www.servicealberta.gov.ab.ca/...hanges.cfm#q10

[Bend it like Bourgeois]

Originally Posted by jinxx123

In terms of capital gains, I've talked to my brother in law who is an accountant and has taken tax courses fairly recently, and he explained it to me this way...
- One Bedroom Condo (bought but unfinished) = Condo A
- Two Bedroom Condo (that we are renting now, hoping to buy) = Condo B

In year 1, we purchase Condo B while waiting for possession of Condo A.
In year 2, we take possession of and sell condo A.
In year 5 (way down the road) we sell Condo B.

In year 1,3,4 & 5 we list Condo B as our primary residence (no secondary residence). In year 2, we list condo A as our primary residence, with condo B as our secondary residence.

What are you doing with condo B in the year off? Renting it? Somehow I think there will be a deemed disposition or two in there.

But I'm not an accountant so what do I know.

[Bobblehead]

Originally Posted by jinxx123

I have no problem living there for a month or so if it means I can afford capital gains tax on six figures!

Is it just me, or is it unbelievable how much real estate in Calgary has boomed in the last two years? I was talking to a friend at work who bought a house in Kincora a few years ago, and she remembers being blown away that the house cost over $200,000!!! Ahhh.... the good old days.

It is more complicated than that.

I think you need to complete a T2091, simply because you have owned the rights to a property which has appreciated and was not your principle residence. If you were to live in it for a year or 2 you would probably have no issue claiming the PRE. But since it has been so long since you "locked in" the price, and the property has increased in value so much, I think the CRA would view some of this as a capital gain. Since you have had some of the appreciation while the property was not your principle residence, they would require you to complete the T2091 and go by the result.

[I-Hate-Hulse]

Originally Posted by Bend it like Bourgeois

What are you doing with condo B in the year off? Renting it? Somehow I think there will be a deemed disposition or two in there.

Bingo.

"A complete or partial change in the use of a property from a principal residence to income-producing, or vice-versa, results in a deemed disposition of the property by the taxpayer at fair market value."

http://www.cra-arc.gc.ca/E/pub/tp/it....html#P62_7508

Lots of what you need to solve your dilemna will be in here and in IT-437, Ownership of Property (Principal Residence)

I haven't put a ton of thought into this, but wouldn't it be better to designate Condo A as the PPR for year 2 (not declaring anything for yr 1) and then designating Condo B as the PPR in yr 3? The main objective is to shelter the gain on Condo A as Condo B won't appreciate as much in the next 2 years as what you've made on Condo A. I wouldn't do anything to jeopardize the PPR exemption on Condo A.

I don't think it's worth designating Condo B as the PPR for the 4-6 months before you move in, appraisals are expensive and it's your call as to how much the market will increase in the next 4-6 months (if at all).

[photon]

Originally Posted by jinxx123

ken0042, just to follow up on your comment regarding landlords. We're currently not under a contract, as our lease expired in August and we're currently month to month. I'm guessing that 90 day notice doesn't apply, but if you have information to the contrary I'd love to hear it!

ken0042's right, it's 90 days. Just do a search for landlord tenant act alberta, there's a few good sites with all the info.

[fwd]

Originally Posted by photon

Good call, yeah the landlord has to give 90 days notice.. though he did say about it being sold "in the fall", so that may have been the notice.

The rules for notice are:
Proper notice to end a periodic tenancy
To end a periodic tenancy agreement, landlords and tenants must give written notice to the other party.
A written notice must include all of the following information specified in the RTA including:

• the address of the premises
• the date the tenancy will end
• the signature of the person giving notice.

Landlords must also include their reason for ending the tenancy.

Amount of notice required:
3 full tenancy months (NOT 90 days).

From: http://www.servicealberta.gov.ab.ca/...fo.cfm#anchor5

[Patrick]

Originally Posted by jinxx123

I have no problem living there for a month or so if it means I can afford capital gains tax on six figures!

Is it just me, or is it unbelievable how much real estate in Calgary has boomed in the last two years? I was talking to a friend at work who bought a house in Kincora a few years ago, and she remembers being blown away that the house cost over $200,000!!! Ahhh.... the good old days.

Market value might be high but right now peoiple are not buying like they were a year ago. Many houses are:

1 -Sitting on the market and not selling

or

2 - People are selling their homes still at a gain but taking much less than they list it for.

Only going to get worse for sellers if/when interest rates (mortgage rates) increase.

[Cowboy89]

[quote=I-Hate-Hulse;968834]Bingo.

"A complete or partial change in the use of a property from a principal residence to income-producing, or vice-versa, results in a deemed disposition of the property by the taxpayer at fair market value."
quote]

The point of the excercise is to shelter the value of condo A's capital gain. This would bite him in the a$$ if the market were to jump and condo B was worth twice as much in the year between ACB and deemed disposition. They he'd owe money on a condo in which he didn't even sell. Should the market go sideways the deemed disposition would be pretty much at ACB anyway while still protecting the gains on condo A. Also condo B would have to be rented out to be considered 'income producing,' if it was left alone I don't think it would be considered a 'deemed disposition'.