12 Tax Rules and Real Estate
- Gain from sale of principal residence not taxable. Loss from sale of your principal residence not tax deductible.
- Sale of principal residence must be reported on the personal tax return.
- If a taxpayer owns more than one home for personal use and/or investment purpose, professional advisor should be consulted for optimal principal residence planning. The rules are complicated.
- Loss from sale of your real estate investment is considered a capital loss (except for those in the real estate industry). This means it can only be used to reduce capital gains reported during the past three years or in the infinite future.
- Gains from sale of presale contracts have been treated as business income by the CRA in some certain circumstances. What is not clear is how CRA will treat losses from sale of presale contracts.
- If a taxpayer is considered part of the real estate industry (eg. realtors and developers) and there is a history of flipping real estate, even primary residences, the taxpayer may have income tax exposure.
- If the taxpayer wants to maximize options and flexibility, do not claim CCA on the rental property. Once CCA is claimed, there is tax consequences on future change of use.
- If using LOC and HELOC to finance a rental property, make sure the funds are used only for the rental property and not comingled with personal use. This will impact the deductibility of the interest.
- If for investment purpose, real estate investments are better held personally. Specifically, a taxpayer that earns most of her income through employment would be better off owning the real estate personally. However, incorporated business owners with retained earnings in a CCPC would be better off holding the real estate in the CCPC.
- CCPC does not get the principal residence exemption but other tax incentives such as CDA extraction on the capital gain is available.
- Large rental losses due to interest payments could be denied by the CRA. There are court cases from the 1980s and 1990s to support CRA’s stand on this matter.
- Large upgrades to the home such as new plumbing, roof or electrical system are not tax deductible. Similarly, building envelope and mold issue shared by each member of the strata are not tax deductible. They are added to the cost of the home.
Real Estate Accountant Services Vancouver
For information on personal tax planing or real estate planning tax tips, please contact us. We’re Mew and Company, your Vancouver Chartered Accountants, and we’re here to help! Give us a call at 604-688-9198 and enjoy peace of mind, knowing you can depend on the experience and expertise of a professional chartered accountant.