Can somebody in Canada help me understand...

[recycled sixtie]

how UCC(undepreciated capital cost) ties in with the sale of a rental condo?

This would be the final sale and one and only condo unit so there would be no further pool
of properties.

This is an example and by providing an answer this would help me to understand the principle better.

Purchase price of unit is $300,000. Sale proceeds after expenses projected to be $280,000.
The UCC balance is $186,000(rounded off).

The capital loss would be $300k less 280k = $20,000.
So what is the treatment of the UCC balance of $186,000 and how does it tie in and impact?

[67R69S]

My understanding is that if your sale price is higher than your ucc, you have to add that amount to your income as a recapture of capital cost allowance.
Basically, you sold it for more than the amount you depreciated it down to through the capital cost allowance.

-Bought for 300000

-Used capital cost allowance to reduce tax payable each year, ucc value now 186000

-Sold for 280,000 so now you pay tax on the difference.

Essentially, you deferred paying tax on the cca amount each year; depending on your income bracket of those years this may have been a good thing, but if you are in a higher bracket now, then it was not a good thing. You do get a $20,000 capital loss claim though.

Definitely check this out with a financial guy; I'm a fireman, not really a numbers guy.

[recycled sixtie]

Thanks 67. I am thinking that you have the right answer. My wife actually got me to readdress this situation as I have been claiming CCA for eight years and selling the condo is possible in the next few years. Looks like I have to pay the piper when we sell and I am not going to claim CCA anymore.

Of course we could just keep it and rent it forever and if I go first then she faces the tax bill!

[johnsjmc]

But I also believe a capital gain is divided in half first and then added to your income effectively being taxed at 50% of your regular rate.

[recycled sixtie]

Originally Posted by johnsjmc

But I also believe a capital gain is divided in half first and then added to your income effectively being taxed at 50% of your regular rate.

That is correct John. If a capital loss then it could be used if I have capital gains to offset it against. In our part of the world real estate is not as buoyant as the Toronto or Vancouver area.

[johnsjmc]

I,m not in Toronto market either As I see your situation you have depreciated the building for several years now so on sale you will have a significant recapture ,which will be taxed as a capital gain . say you sell for $280 and its undepreciated value is 180 you will owe capital gains on 100 . 100/2 =50 which is added as income to your taxes in the year you sold. I am not an accountant so you might have some other deductions (I vaguely recall a 100k deduction in the 80s (Mulroony years) which you might be able to use if you properly reported it at the time or other rules to apply speak to your tax preparer.

[recycled sixtie]

Originally Posted by johnsjmc

I,m not in Toronto market either As I see your situation you have depreciated the building for several years now so on sale you will have a significant recapture ,which will be taxed as a capital gain . say you sell for $280 and its undepreciated value is 180 you will owe capital gains on 100 . 100/2 =50 which is added as income to your taxes in the year you sold. I am not an accountant so you might have some other deductions (I vaguely recall a 100k deduction in the 80s (Mulroony years) which you might be able to use if you properly reported it at the time or other rules to apply speak to your tax preparer.

Thanks John for the input. I am not an accountant either. I may have to consult a tax accountant on this. I think there are two elements of taxation on this but I could stand corrected.

First off there is the capital gain or loss, likely a loss if sold tomorrow which I am not going to do as I have just got new tenants.
If sold for 280 and purchased for 300k then there is the capital loss. The other element is income associated with the use of CCA which impacts paying back when the condo is sold.

I thank you all for your opinions. The last time I phoned a tax accountant he said his rate is the first half hour is free and after that $300 an hour. I should probably do that.

[1990C4S]

Isn't there a lifetime tax free capital gain amount, the first $400k? ($800k gain)

[Rinty]

rs:

I'm not an accountant either, but here is how I understand it works:

In your example, the total of the capital cost allowance that you have claimed over the years is added to your income in the year of sale. This will push you into a higher tax bracket.

Any capital loss you take can be deducted from capital gains only. You may be able to carry back a few years and carry forward a few years, but I'm not sure.

Finally, these concepts aren't rocket science, and any accountant should be able to prepare the return for you. You won't need a tax accountant.

Also, ask the accountant about Terminal Loss, as this concept is complex.

[recycled sixtie]

Originally Posted by Rinty

rs:

I'm not an accountant either, but here is how I understand it works:

In your example, the total of the capital cost allowance that you have claimed over the years is added to your income in the year of sale. This will push you into a higher tax bracket.

Any capital loss you take can be deducted from capital gains only. You may be able to carry back a few years and carry forward a few years, but I'm not sure.

Finally, these concepts aren't rocket science, and any accountant should be able to prepare the return for you. You won't need a tax accountant.

Also, ask the accountant about Terminal Loss, as this concept is complex.

All good points. Just trying to tax plan. All of you have reconfirmed my thoughts.
Thanks for that. You have helped me reconfirm that there is no free ride re tax. Pay now or pay later.

[Mark Henry]

I didn't reply to this because it's been so long since I went through capital gains.
I agree with those that say you need an accountant to help with this and you want him to do your taxes for the year you sell.
In fact you should talk to one before you even list.