Selling Your Vacation Home? What to Know About The Process
After a homeowner buys a vacation home, they may decide, at some point, decide to sell the property. As a result, they often have a lot of questions about capital gains taxes. Capital gains taxes are taxes applied to the profits on the sale of an asset. Vacation homes can be hit heavily with capital gains taxes, but there are some ways maneuver around this problem. If you're a homeowner with a vacation property, these tips can help.
What You Need to Know About Capital Gains Taxes
Vacation homes are subject to capital gains when they're sold. They're also subject to these taxes when they're given to someone as a gift and when they're inherited. To calculate the capital gains tax that a person must pay, first the adjusted cost base must be calculated.
The adjusted cost base is a change in value that occurs because of changes or improvements made to the property. For example, suppose a buyer purchases a vacation home for $300,000. After two years of ownership, they add a room for $50,000. The adjusted cost base of the property is now $350,000.
If ten years later the homeowner sells the property for $500,000, then the homeowner is taxed on $150,000 (the difference between the adjusted cost base of $350,000 and the final sale price of $500,000).
Are There Any Ways to Avoid Capital Gains Taxes?
Yes, there are ways to avoid paying capital gains taxes in Canada. A good accountant can help a homeowner with all of these questions. Here's a summary:
Make Home Improvements
The more home improvements a homeowner makes to their vacation home, the more they can claim when trying to calculate the adjusted base cost of the house. It's important to save receipts. Check with an accountant to decide whether all home improvements count.
Gift It to a Spouse
Widows get to receive their vacation home from their spouse in the event that their spouse dies. Under these circumstances, the widow does not have to pay capital gains. Gifting the house to someone else will likely result in capital gains.
Live In the House
Once the house is lived in, it may be claimed for a time as a primary residence. Again, it's important to work with an accountant to ensure that this maneuver is performed properly and according to tax code. Homeowners should keep track of dates when they lived in the house, and proof that the event occurred.
Selling A Vacation Home? Work With the Professionals
If you're a homeowner who is trying to sell your Dickinsfield vacation home, it's best to get help from professionals. Get referrals for an accountant you can trust. If you can't get any referrals (maybe no one you know uses an accountant), get references for the accountant that you eventually decide to hire. Check professional certifications and licensure as well.
When the time comes to look for a real estate professional, look for a real estate professional who is in the geographic area around the vacation home. This may take some time, if you don't live in the area yourself. Get references and make phone calls to different professionals. When talking to real estate professionals, ask them what they would do to sell your house quickly and for the right price. Asking all real estate professionals the same questions will help you compare each candidate to help you find the right person.