What are Capital Gains?
Capital gains are taxes that you pay on the profit or increase in value of a property when you sell it. That being said – capital gains means something different to everyone. The best thing to do is talk to your accountant before you sell any second property to see how it applies to your specific portfolio.
I try and keep this blog as simple as possible and a lot of the topics I speak about, we just brush on the surface of the idea. So the most important question is: how do you know if you are subject to paying capital gains taxes and how much will it be?
1) Basically any property that you do not call your principal residence is considered an investment and thus subject to the tax. If you do not live in the residence (and you can only have one principal residence) and the value of the house upon sale is greater than the value you purchased it at + renovation or other expenses you incurred on the property, you will have to pay capital gains. Yes, there may be some loopholes ie. passing property through family, forced sales or relocations for work, etc… but generally you can expect to pay tax if you made money on it.
2) The amount of tax on capital gains varies throughout North America, but in Alberta you can expect to pay tax on 50% of your profit. Ie. make 100,000 on the sale of a rental property – 50,000 of that is susceptable to a tax rate coinciding with your specific tax bracket. (In alberta the lowest personal tax bracket would be 15.25+10% =25.25%) So in this example you would pay a minimum of $12,625 on $100,000 profit if you were in the lowest bracket. There are other routes one can take, involving running it through a business that may or may not be advantageous to you. Again the best advice – ask your accountant before you sell to figure out what the best route for you to take is.
