Tax Facts for the Sale of Your Vacation Home
Navigating taxes during a first-time home sale can feel like a bit of a minefield, to say nothing of selling a second/vacation home. The government isn't exactly looking to cut homeowners a break if they have enough money to buy more than one property. But thankfully, homeowners do have some options when it comes to asking how to sell a home and navigating their vacation home taxes. See how it all works, and what strategies can be used to mitigate the financial repercussions.
Facts on Capital Gains
A capital gain is the difference between what an asset was purchased for and what it was sold for, and capital gains on the sale of a second home do not get a break like primary homes do. Those in the top income brackets will pay 20% of the full appreciation of their home. The most common income rate is 15%, which is still a fairly large chunk of the appreciation. The good news is that homeowners are allowed to deduct major renovation costs to the home as well as all closing costs (including real estate agent fees.)
Facts on Mortgage Interest
What are the tax benefits of owning a home? Homeowners were allowed to deduct mortgage interest on their taxes if they had accumulated debt that was under $1 million, but this was recently changed. Now, the limits are set at $750,000, which is an easy enough limit to meet when owners have more than one property under their belt. While technically a rule for those who still own their vacation home, it's worth noting when filing at the end of the year.
Facts on Depreciation
It can be tempting to claim high values of depreciation for those who claim rental income. The more depreciation, the less rental income a person has to declare. However, there's a risk in this strategy if the property value has steadily climbed. Those who claim a high level of depreciation will start with that number when calculating their capital gains. So if the property was originally purchased at $500,000, depreciated at $100,000 and then sold at $1 million, the capital gains will be taxed at $600,000 instead of $500,000.
Facts on Deductions
If the vacation home has gone up in value, an Altadore homeowner would be smart to concentrate on their deductions rather than their depreciation. What can be deducted can be tricky though, so it helps to talk to a real estate agent. For example, a homeowner can deduct major home renovations but 'major' is a vague enough term that homeowners should consult with someone who understands the specifics. Homeowners can also usually deduct the closing costs from the original purchase of the property, in addition to the real estate-related costs of the home sale.
Facts on Changing Residences
Investors will sometimes make their vacation home their primary residence if their vacation home has risen in value while their primary residence has declined. In this case, homeowners can sell the primary and deduct their capital losses from their capital gains to avoid taxes. They can also then sell their vacation home turned primary home after two years so they can deduct $250,000 per owner from their home sale.
If you're wondering how to sell your one-of-a-kind home in Calgary, know that understanding home taxes is a matter of diving into the details of depreciations and deductions. The more effort a person puts into their home sale costs, the more likely it is they'll be able to reap the benefits of their vacation home appreciation.