Capital Gains Tax on Cottage or Investment Properties

Determining Capital Gains

When selling a cottage or investment property, understanding capital gains tax is crucial. To calculate any gains or losses, you must know: *

Purchase Price:

The original cost of acquiring the property. *

Additions and Improvements:

The total expenses incurred to enhance the property's value over the years. *

Selling Price:

The amount received from the sale of the property.

Tax-Free Principal Residence Exemption

Selling your principal residence remains tax-free. However, any gains from the sale of a cottage or investment property are subject to tax.

Calculating Capital Gains Liability

The capital gain is calculated as the selling price minus the purchase price and additions. The tax liability then depends on your income and the specific tax rate applicable to capital gains. For example, if the selling price is $250,000, the purchase price is $100,000, and the additions are $50,000, the capital gain would be $100,000 ($250,000 - $100,000 - $50,000). Assuming a 25% tax rate on capital gains, the tax liability would be approximately $25,000 (25% of $100,000).

Conclusion

Understanding capital gains tax is essential when considering the potential tax implications of selling a cottage or investment property. By calculating your gains and consulting with a tax professional, you can minimize your tax liability and make informed decisions about property ownership.