Questions and Answers – Selling a home
Question: I got married a couple years ago and we moved in together soon after. We both owned a home and we (she) decided we would sell mine. It wasn’t selling at the price I wanted and so I rented it out for a couple years. I got tired of tenant issues and so put it up for sale again. Now it has finally sold. I heard if you sell your principal residence it’s tax free but I was talking to a friend and he said that since it was a rental property I’d have to pay tax on the sale. Is it taxable and if so, how much tax do I have to pay for selling the home for $350,000 where I paid $280,000 for it and I’ve owned for 6 years?
Answer: Ironically, both you and your friend are correct. You don’t have to pay tax on the sale of your principal residence but you do have to pay tax on the sale of your home, since it wasn’t your principal residence when you sold it.
Basically, your house is exempt from tax for every year it was your principal residence (+1 year) *1.
So although you moved out of your home in 2011, the capital gain on the sale of your home is exempt for tax purposes until 2012.
To figure out how much tax you owe on the sale, you need to know 2 things:
The capital gain you have to report on your tax return is (A-B) x 50%.
It doesn’t matter what you paid for the home or how long you’ve owned it if it was your principal residence for those years. You only have to pay tax on the increase in the value of your home after it stopped being your principal residence.
Due to the housing market being “soft”, house prices have decreased in certain areas and so it’s possible that you may be reporting a capital loss on the sale of the home.
*1 CRA never gives up the opportunity to complicate it with a formula via vie form T2091.