Offseting capital gain on rental property with carried over rental loss

[Alh]

Let's assume I have $5,000 rental business loss in the 1st year, and $2,000 rental business gain in the 2nd year.
That means I would not have any rental income tax neither on the 1st year nor on the 2nd year AND I would still have $3000 loss to carry over, right?

 

Now, if I sell at the end of the 2nd year and have a capital gain of 10,000, would I need to pay the capital gain tax on $10000? Or could I use the remaining 3000 loss to offset the capital gain and only pay capital gain tax on $7000 ($10000-$3000) ?

[Maggie3]

Hello Alh,

If you have a rental business loss it is deducted from your total income for the tax year. If you have a rental business loss in the second year, the amount is deducted from your total income for the second year. There is no carryforward. 

If you sell in the second year and have a capital gain , you will pay tax on 50% of your capital gain.  In your example $10,000 capital gain  x 50% = $5,000.

For more information on Capital Gains, please refer to the link below:

https://www.canada.ca/en/revenue-agency/services/forms-publications/publications/t4037/capital-gains.html