Real Estate Q & A: If you rent out a home, tax situation could change

Real-estate transactions and the naming of a U.S. executor were among the topics raised in the latest batch of reader questions. Here’s what they wanted to know.

Real Estate Q & A

Q: “My parents live in a home that took 30 years to pay off. They have decided to invest their money in real estate after a $25,000 loss on their investments after the stock market tumbled in early 2009. They will spend about $30,000 to renovate their new condo and will then try to sell it. How can they avoid paying the tax on the sale of the condo without having to live there as their primary residence?”

A: They pretty much have to live in it to qualify for the principal-residence exemption. Otherwise, it’ll be taxable if sold for a profit, and if they’re not careful, may generate straight income, not a capital gain. Syd Berger, tax partner at accounting firm Bessner Gallay Kreisman, notes that a property not used as a principal residence is subject to income tax for the amount of the gain realized at the time of disposition. Capital gains apply only if the property was used for investment purposes – for instance, if it was rented out. “If the property is renovated and subsequently listed to sell, without any intention of a holding period for investment, the gain from the sale may well be considered as income and 100 per cent of the gain would be subject to income tax,” he said.

Q: “I live in Montreal and want to name my daughter, a Canadian living with her American husband and kids in Chicago, as executor in my will. Is this possible or will it cause tax problems in Canada?”

A: It’s not recommended. David Altro, a Quebec notary who does business in both countries, said the residency of the estate upon death could become an issue. The Canada Revenue Agency could consider it a non-resident estate, thereby complicating the tax issues.

Q: “My late parents in Greece bought a home in 1953 and left it to me in 1980. It was recently sold. Do I have a tax obligation from this transaction?”

A: It depends. If you didn’t own a house in Canada, and spent time at the property in Greece each year, you might be able to designate it as your principal residence and avoid being taxed on any capital gains accrued since 1980. Otherwise, you’ll have to declare the net gain on the property from the time you acquired it until the year of the sale, and pay the capital-gains imposition applicable that year.

Source:  by PAUL DELEAN | The Gazette | January 25, 2010


About Tariq Sultan
Dear Readers, I am a dedicated Toronto, Ontario based real estate professional who has been successfully meeting and exceeding the needs of his clients for past several years. I am actively involved in the insurance, financing, and mortgage industry. Real estate is not only my career – it is my passion. I strive to continuously provide my clients with exceptional service to ensure they are fully satisfied when it comes to their real estate needs. For any real estate related inquires contact me today, I will be happy to assist you. Best wishes, Tariq Sultan

One Response to Real Estate Q & A: If you rent out a home, tax situation could change

  1. John Spehtyue says:

    You�ve got a excellent blog here! would you like to make some invite posts on my blog?

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