Let's talk about....Capital Gains Taxes

[mrkajz44]

I don't think this was clarified yet, so I'll add it here.

Capital losses can be carried forward forever, so any unused capital loss you've had in the past can offset this gain. Capital losses can be carried back for up to 3 years, so if you incur any capital losses in the next three years (2016, 2017, 2018), then you can use those to offset this gain. Also, any capital loss this year (2015) would also help offset this gain.

Of course, you can only reduce the gain to zero with these carry back and carryforward rules.

[CorsiHockeyLeague]

Or obviously you could also use regular business income losses to offset it. Regular business losses can be used to offset capital gains, but capital losses can't be used to offset business income. Unless they're allowable business investment losses. So if you have capital losses you want to soak those up first.

... We're just confusing the issue now aren't we?

[heep223]

Originally Posted by Dime_On_Flames

I don't want to get ahead of myself here...the land has been listed but not sold. With how the economy has been the last 5 years, it's hard to say when and for how much the property will sell for.

As for the ROI, if we get the asking price then it's close to 3 but I'm expecting hoping for between 2 and 3.

Not really savvy in the investment game so I don't know if that's average or above average for a 5 year and counting investment. I think my personality would be better suited for something more fast paced...but that's a whole other discussion to be had!

If you are getting a 2.5X payback over let's say 6 years, your IRR is around 16%. That is pretty good, I would say slightly above average for a retail investment product in raw land, and pretty much what you'd expect with this type of investment. I would assume that when the company was marketing this product to you their target IRR would have been in the 13-15% range.

Though as you mention, I wouldn't count your chickens here. I'm actually pretty surprised that the company would be selling into this market.

[Locke]

You guys are all over the place but I think you've covered most of it pretty well.

The most important things is to be sure of the type of land and the type of investment.

[username]

Related to capital gains taxes....say I have a vacation home and sell it and buy another vacation home right after that (within the same year)....am I hit with the capital gains tax there too?

[CorsiHockeyLeague]

^Almost certainly, unless you have a pattern of doing this all the time and flipping houses is one of the ways you make your money. In other words, unless your vacation homes are inventory to you instead of a capital asset, you're paying tax on the gain.

I vaguely recall some rule about "same or similar property" where you can roll your proceeds into a new near-identical property within a specific time frame and defer the gain but I don't think it applies to vacation homes...

[username]

Well I've had a place for about 10 years but have been thinking about getting something different........so would this apply? I am not flipping homes to make money, I'm just looking to get another place but to pay the capital gains before I buy another place would deter me from doing so.

[CorsiHockeyLeague]

I think this is what you're looking for...

http://www.mnp.ca/media-centre/blog/...wAAAAAAAIvWAQA=

So it looks like my vague recollection was right that such rules exist, but wrong, in that they actually SHOULD apply in your case. I think you're in luck here.

[mrkajz44]

The replacement property rules apply for business only. So if you are just buying a new vacation home, those rules would not apply.

With a vacation home, unless you use your principle residence exemption on it (and forgoing it on your actual home), you pretty much pay tax every single time.

[CorsiHockeyLeague]

^Can you clarify? Because taxpayers are not classified by "business" or "person" or whatever. Like I say my recollection of how these rules work is vague so I'm not disagreeing with you but wondering how they exclude personal use property.

EDIT: Looking at s.44 it actually limits the disposed-of property to "former business property" in the case of a voluntary sale (i.e. the property wasn't expropriated by the government or something). So I guess that's how.

[heep223]

Originally Posted by mrkajz44

The replacement property rules apply for business only. So if you are just buying a new vacation home, those rules would not apply.

With a vacation home, unless you use your principle residence exemption on it (and forgoing it on your actual home), you pretty much pay tax every single time.

...unless you're selling it for a loss of course. Which could very well be the case these days with the vacation home market where it is.