Hands in your pockets, hands in your pockets, hands in your pockets! They always have their hands in your pockets don’t they? Need we say whom?
Real Estate & Capital Gains
To be easily understood, a capital gain is an increase in the price or value of an investment (such as real estate) from the first purchase price. If the first price or value of the asset increases, quite simply, you have a capital gain and you need to pay tax on it. Its horrible making money isn’t it? Not only are you hard done by with that but then the government comes along and wants a pice of the pie! 1st world problems.
What are Capital Gains Taxes in Real Estate and how do they work?
When you offload or sell an investment home (non residence) in B.C for profit you are taxed on 50% of the net profit. Unlike like business income where you will be taxed on 100% of the profit.
For example if you sold an investment property (which wasn’t your primary residence) in Langley BC and you make $1,000,000 net profit you will be taxed on $500,000 of that.
Capital Gains Exemptions?
If you have lived in the property, it is your primary residence a that property has appreciated you should be not have to pay capital gains in most cases. However, the government knows you don’t want to pay them out of pocket so they have some new investigations to try ands top flippers. If you buy a home, realize you could be making money/capital gains and sell once every 10 to 12 months, you may get nailed. The government could consider this your business and you could be taken by the tax man. Be not he safe side and speak with an accountant who specializes in this field if you are unsure. There is no exact rule to this timeline however. The unwritten rule is one year of living in the home to make it a “primary residence” according to the man. In the end however, it is all about intent apparently. If you bought and moved into a 1 bedroom condo in Surrey central, got hitched and are about to have a baby and the 1 bedroom was not enough you can in some cases sell and be exempt regardless of the 12 month timeline. We are not accountants though and you need to confirm this with a lawyer or Real Estate Accountant prior making that decision. The selling of the house, not the getting hitched and having kids 😉
When a primary residence turns into an investment
Let’s say you have lived in your Maple Ridge house for a year and then you decide to rent it out and buy anew place instead of selling and buying a new place..
This will come as a shock to many. Should you have seen an appreciation on the value since you have originally bought the house in Maple Ridge and lived in the home you need to appraise it when you move out.
After you move out and rent it you are now on the hook for any capital gain that happens after you move out. Yep hands in your pockets!
- Bought a Langley townhouse in January 5, 2016 (probably in multiple offers…!) for $500,000+
- You rent the home out as of January 1, 2016: You have a Realtor & appraiser determine the value of your Langley townhome is now respectively $625,000
- Say you then sell your (now) “rental home” in January 15, 2016 for $700,000
- Your taxable capital gains will be half of the $75,000 you have made since you turned it into an rental property or investment.
- Taxable capital gains = $37,500 | Say you are taxed at a rate of 33% your capital gains tax should be around $12,000.
This is not an exact science as again, we are not accountants or real estate lawyers. *Please consult your appropriate professional for the exact numbers. This is just to give you a good idea should you be deciding on making the move. If you happen to be thinking of selling… Find out what your home or investment is worth now with a free home evaluation!
For direct info from CRA and for more information on Capital Gains tax visit the Canadian Revenue Agency….