In Vancouver Real Estate – many home sellers have made a lot of money on their homes or Real Estate investments. The big question is will you be charged Capital Gains?
Vancouver Real Estate & Capital Gains
“In simple terms, a capital gain is an increase in the value of an investment (such as stocks or shares in a mutual fund or exchange traded fund) or real estate holding from the original purchase price. If the value of the asset increases, you have a capital gain and you need to pay tax on it. That might sound bad — but trust us, making money on your investments is never a bad thing.
Capital gains can be “realized” or “unrealized.” A realized capital gain occurs when you sell the investment or real estate for more than you purchased it for. An unrealized capital gain occurs when your investments increase in value, but you haven’t sold them. The good news is you only pay tax on realized capital gains. In other words, until you “lock in the gain” by selling the investment, it’s only an increase on paper.” WealthSimple
What is Capital Gains Tax in Real Estate and how does it work?
Simply put, when you sell an investment home in B.C you are taxed on 50% of the net profit. This is very different from business income as you get taxed on 100% of that income. The amount of Capital Gains are taxed based on your total personal income over the taxed year. Meaning, you will need to add 50% of your capital gain to your personal income and see which tax bracket you fall into. Search your own tax bracket based on your income – https://www2.gov.bc.ca/gov/content/taxes/income-taxes/personal/tax-rates
Let’s say you sell an investment property in Vancouver and you make $100,000 you will be taxed on $50,000 of that. If you are in the 33% tax bracket you will be taxed $16,500 approximately.
**Definitely consult your accountant however as everyone has a different situation.
Capital Gains Exemptions
Simply put, if you have lived in the property that has appreciated and it is deemed your primary investment you should be exempt to pay capital gains in most cases. However, if you buy a home, see capital gains and sell once every 12 months – be careful! The government may deem this your business and you could be taxed. Don’t try and take short cuts, this could cause serious legal ramifications in the long run!
The unwritten rule is one year of living in the home. However, it is all about intent. If you moved in, had a baby and the 1 bedroom was not enough you can in some cases sell and be exempt. However, you need to confirm this with a lawyer or Real Estate Accountant before making that decision.
When a home turns into an investment
So you have lived in your Vancouver home for a year and decide to rent it out – What happens? If you have seen an appreciation on the value since you have bought and lived in the home you need to appraise it when you move out.
After you move out and rent it you are now on the hook for any capital gain that happens after you move out.
- Bought a Vancouver condo in January 1, 2015 (probably in multiple offers…!) for $500,000
- You rent the home out as of January 1, 2016: You have a Realtor & appraiser determine the value of your home is $625,000
- You sell your home in January 2017, 2016 for $700,000
- Your taxable capital gains will be half of the $75,000 you have made since you turned it into a rental property or investment.
- Taxable capital gains = $37,500 | Say you are taxed at a rate of 33% your capital gains tax should be around $12,000.
This is a very general look at how it could work and everyone has a different scenario. *Please consult your accountant and/or Real Estate Lawyer. If you have moved out of a home, moved back in, had family move in or anything else there are a lot of moving parts.
As a Vancouver Realtor for over a decade now I have many contacts who can helps us determine your situation. With a specific Real Estate Accountant, Lawyer and more we can make sure you know very well what your situation may be.
Thinking of selling? Find out what your home or investment is with a free home evaluation!
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For much more information on Capital Gains tax visit the Canadian Revenue Agency….