The ACB of your house (rental) now becomes 390K (disposal value) and when you sell the rental property your capital gain will be the selling price less the 390K, Half of this gain will be taxable.

Hope this was a quick and easy response for you to follow.

I am planning on converting my primary residence to a rental and then renting out a cheaper condo while saving for a second property.

Since buying the unit (3 years) – the value has gone from 350k to 390k. When i decide to start renting it out and when it comes time to sell in the future, does that mean the capital gains tax would be calculated on sale price-390k (assuming i get it appraised when i start to rent it) – what happens to the 40 appreciation while it was my primary residence – no tax??

My wife and I bought a condo a year ago and renovated it. We purchased a smaller place in order to build equity and not drown in paying interest only, we are currently making ~3x the base required payments on a regular basis.

The bank appraised it at $235,000, (Much more than we bought and reno’d it for). We’re looking at buying a bigger condo within a 1-4 year timeframe that will likely be in the $300-350k range. When we do this we will have approximately +/- $100,000 remaining on our mortgage (largely depending on how soon we do this of course).

Although our place is appraised at $235k, I personally believe we would probably be able to sell it for ~$210k.The higher appraisal obviously gives us more financial leverage although some of the value may be imagined.

1) Could we do a deemed disposition to convert to a rental and have it appraised, hopefully (to what the banks appraised it) at $235k? If we could do this, I was hoping on renting out the unit for a short period of time and then either sell it at a ‘loss’, although if I could get more that would be better(ie $210k and gain the benefit of the lost income as well as writeoff the realtor comissions), or keep renting if that situation works out better after re-evaluating the situation.

2) Could we simply do the above after renewing a mortgage and take out all equity above the 20% ($235k *80% = 188k mortgage, the 20% would remain as the downpayment, the remaining equity taken would be used to purchase our new residence). I reliaze there could be some shuffling to make the 20% downpayment interest deductable but I’m not sure I want to go through that much effort.

The reason for this is:
- I don’t want to loose $5-10k+ in realtor fees after owning a place for a short period of time
- I don’t want to sell my place for $25k than what it is appraised at
-I want to gain the writeoff benefits of interest on a rental mortgage as well as the writeoff’s of realtor comissions if I decided to sell.

Hopefully this is somewhat clear, any thoughts, or am I fatally flawed in my thinking?

Thanks for the useful article!

Is a portion of the mortgage interest claimable if you purchase a home with a pre-existing apartment and plan to live in the other portion of the home? Does this only work if you don’t claim the property as a principle residence?

I guess while providing some tax benefits now that leaves the door open for capital gains in the future.

However, I am wondering the best way to enter this field of investment. Assuming I can get the properties/financing without any major problems, (ex: 3 duplexes) what is the best way to achieve this from a tax/mortgage perspective?

1. Buy the first building AS a principle residence, rent out apartments
3-4 months later, buy second building AS principle residence,
and keep repeating this process?

2. Or, stay in an apartment the first building and simply add the next
buildings as “investment” properties and taxed accordingly? Is it
correct that interest on these other mortgages is tax deductable,
while interest on the first (principle) mortgage is not?

Willing to take the whole process slow (i aim to change careers to do it full-time) -but obviously I need the right direction from the beginning.

3. Would a “real estate professional” status shield me from tax?

4. Also, while I will have a day job (wife and I are both named on all mortgages) -can my pregnant (unemployed) wife claim this rental income & losses -instead of myself, to lower tax bill?

5. Any advantage to owning all in a partnership or in a company? May leave country again.

Thanks for any advice!!

Chris

Is it possible to consolidate the HELOC with a new mortgage (the rental mortgage is up for renewal in October) and then claim the new mortgage interest expense on the rental property?

Thank you for your reply! I am a bit confused about what you said. Regardless whether I had the townhouse appraised or not, it is still considered as if I sold it to myself (deemed disposition) at “fair market value” at the moment it changed designation. Surely an appraisal would have assessed that FMV, but is it the only way? Specially in my situation when the townhouse is part of a complex with very very similar units, city records of similar sales in the complex could provide a documented proof of FMV, could it not? Does it say anywhere in the tax law that the adjusted cost basis after the deemed disposition can ONLY be an appraisal or is up to the CRA to consider (or not) whatever documentation the filer provides?

I filed the rental income on my taxes over the last two years, but did not claim the CCA, but I plan to do that this year. I noticed when I claim CCA I have to enter the Adjusted cost basis; my intention is to use 2/3 (based on 1/3 land and 2/3 building breakdown) of what I consider to be FMV at the moment it changed use. From a technical viewpoint that is the cost of the unit when I bought it from myself, as per deemed disposition.

I really appreciate your help and any future insight you might have :)

Best regards,
Theo

We bought a townhouse before the boom with about $180,000 and lived in it for three years. We moved into a bigger house and decided to keep the townhouse as a rental property. When we moved similar units in the same complex sold in $330,000-$360,000 range. Unfortunately I didn’t get an appraisal.

My understanding is that at the moment the townhouse change designation from principal residence to income producing, for tax purposes, it is considered as “deemed disposition”, so as if we sold the townhouse to ourselves at “fair market value”. No capitals gains would be paid due to the principal residence exemption. First question would be: is this indeed so?

Secondly, if the above paragraph is correct, does it mean the new “Adjusted cost basis” for the townhouse is not 180K but 330K? As I said, I plan to document the $330K if need be with the sale price of similar units.

I am planing to sell the townhouse shortly. Does this mean that, IF I sell below 330K (which is very likely) I will actually incur a capital loss?

I didn’t claim any CCA on the property during last two taxation years, but I am thinking that, IF what I said above is indeed accurate, I should have since my asset (the townhouse) depreciated from its $330K value so there wouldn’t be any CCA recapture.

Can anybody please provide me some answers/insights fro the above scenario?

Best regards,
Theo