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Sale of rental property (loss) - income effected?


rjg843
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Sorry, I know this topic has come up a few times now but I'm still a bit lost on how to properly claim the sale of a rental unit (condo).

I created a CCA form - Class 1 - 4% for the sale, however I'm not sure if I should also create a Capital gain (loss) form as well. Do I need to do this for the same sale?

Once I had the CCA form filled in, it appears that the sale seems to have created a net negative rental income in the software. This in turn has reduced my wife's income to a negative number (she owned the condo herself - before we were married). This doesn't seem correct to me since as far as I know a Capital loss (i.e. sale of the rental) can't be used to reduce income. Am I missing something here?

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Hi rjg843.

In the CCA class you need to complete the area for dispositions and respond to the question to Calculate the capital gain. Make sure you have entered an amount in both areas where it asks you about the ACB.

The fact that you have a negative income indicates to me that you may have sold for less than the cost and you have never claimed CCA. This situation produces a Terminal Loss on the disposition. Look on the rental statement for Terminal loss near the bottom of the rental statement.

If that is not the case then recheck your data for Proceeds, and both areas for ACB.

 

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Thanks for the quick reply.

Yes, a terminal loss was created and no, we've never claimed CCA before. Also, yes, the rental was sold at a loss (less than it was purchased for).
I guess the numbers are correct then, they just caught me off guard as I didn't think that a loss in this situation could be used to reduce income.

Thanks again.

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Hi rjg843.

Just some further information. A terminal loss can only be due to depreciable property and not due to any loss on land (non-depreciable property). You need to allocate between the land and the building for the ACB, Proceeds and Expenses for disposition. The disposition of the land will result in either a Capital gain or a Capital loss, but never a terminal loss. If you have a gain it will be claimed in the current year as is the terminal loss. If however you have a capital loss it will apply against any current gains if any. If there are no gains the capital loss can be carried back three years against any gains in those years or carried forward.

You need to separate the land and building and open up a CCA class for the land and enter the data as you did for the building.

Now another point will be who you sold to. If you sold to a related individual you need to be able to supply an independant appraisal of the land and building. Selling to a related individual can be problematic without that appraisal.

Be prepared for more scrutiny as CRA picks up on a Terminal Loss and usually does a derailed review.

 

 

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  • 2 weeks later...

I set this up as a new topic - so you can ignore this one.

We have sold rental property that has resulted in a Terminal Loss.  My husband and I are co-owners of the property.  The tax program is splitting the rental income/loss 50/50 between us, but I am not able to get the program to split the Terminal loss 50/50 between us.  UFile is claiming the total Terminal loss on both of our tax returns.  I have searched everywhere in the program and cannot see why it wouldn't split this when it does for the rental income/loss.

What do I need to do in order to have the Terminal loss split between us.

Edited by Deb1634
removing because I set this up as a new topic
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