Capital Gains

[skinner]

I was hoping someone can help me with capital gains.

I purchased a house in 2007 for roughly $145K. I lived in this house until I bought another.

In 2013, I purchased the other house and decided to rent the house I purchased in 2007.

In 2013, I got the rental property appraised for $270k and started to rent the house.

I did this for 8 years until 2021 when I sold the rental property for $245k.

Do I pay capital gains on the $100k or do the appraisal offset this?

Thank you for your input. 

[TheTaxSmith]

When you started renting out the home did you use the appraised value you received as an entry to the Capital Cost Allowance schedule? Did you make a claim for disposition of the principal residence using the appraised value as the disposition amount? Did you claim any capital cost allowance during the rental period? What is the Undepreciated Capital Cost of the rental property?

[skinner]

HI TaxSmith,

I did not make a claim for the disposition of the principal residence or any of the above you mention. I filed my taxes yearly and claimed the rent I received as income.

I'm not sure what my next steps are.

 

[TheTaxSmith]

Ok did you make any claims for Capital Cost Allowance (CCA) during the years the property was rented? Your situation is a bit more complicated due to the drop in market/appraised price from the time you moved out and started renting to the time the property was sold. CRA will most likely want to see a copy of that appraisal for $270K so make sure you have it handy. Also you need to separate the value of the land portion from the building value for the original purchase, the appraised value and the disposition value. You are disposing two properties, the land being one, the building the other. On the rental statement (data entry for Ufile area) you will show the disposition of the property for $245K. You will use the $270K as the ACB (acquisition) value. If you did not claim any capital cost allowance (CCA) you will have a Terminal Loss of $270K (less the land portion) - $245K (less the land portion) = $25K (less the land portion). That said you would also have a capital loss or even a capital gain on the land portion. If you claimed CCA things are different. You will also have to show a disposition for the principal residence. You would use the appraised value of $270K and the cost as $145K. That said the way CRA would like to interpret the calculations would be using the $245K as disposition, the $145K as the cost and exempt you for just the years you lived in it as a principal residence, the rest of the years would result in taxable capital gain. I suggest you have on hand municipal tax bills for all the years that indicate that the property did in fact drop in value, or have a very good argument for the devaluation of the property during the rental period. The Terminal Loss and a Capital Loss or Gain in this case will most likely attract CRA attention so be prepared.