Capital Gains on investment property

B

backinthesaddle

New member
Has anyone taken over an investment property jointly owned between you and spouse? How did you deal with capital gains owing? As it stands now if I sold the house approx 50k would be owed in capital gains. Ex wants me to take it over and do with it what I want...keep or sell. However, I would be out 50k right off the top.
 
Is there a tenant in it now? If not, move in during separation and then sell. No capital gains needed.

If there’s a tenant, keep it and earn the money!
 
There is a tenant in it. I need the equity. I have moved into another rental. You always have to pay capital gains. Even if you move into it. They are calculated up until you use it for your primary residence. I did this last year. My issue is how are the taxes divided if one buys one out? Is the spouse that keeps the home also to take on that alone. How is it calculated in the equalization?
 
I would think that it would be treated similar to any asset with a cost associated. If the house sold for $100,000 and the capital gains were $20,000 then it would have a value of $80,000. You may want to speak to an accountant. A lawyer may not know the answer to this.
 
So, I got the answer to my question. I thought I would post the findings. Should one take over a property that is subject to capital gains, you alone would pay the tax when you sell. You can request that the tax that one would have to pay until this time be split between spouses. It gets difficult because the gains are added to your annual income and then paid at that tax bracket.

income property sells for $450,000
purchased for $250,000
less real estate fees lawyer etc ($30,000)
capital gains $170,000 /2 = $85,000
Annual income $100,000 + $85,000
Taxes owed would be on $185,000 income for that year. Which would affect Child tax benefit, child support, spousal support etc. Major hassle.
 
i have a similar quandry. I own a rental property where i lived in one unit before getting married and rented the other. we never lived there together. It was a rental property during marriage and i managed it fully and always dealt its revenues and expenses from my personal account. now upon divorce she wants half the appreciated value with no consideration to the 100k in cap gains i would need to pay to both CRA and IRS since im a dual citisen. In my view she should get half of appreciated value increase since marriage net of projected selling expenses and cap gains as if there was a deemed disposition. i would prefer to keep the property and live there.

i see cap gains taxes as a future liability that needs to be included. otherwise its a tax free windfall to her while im holding the bag.
 
There is also a form you can complete, a joint election under section 74.5(3)(b) you can complete (both parties have to sign) to NOT have section 74.5 of the act apply. If I recall correctly, there is also a difference in how the tax is handled if the property is disposed (to a third party) before being divorced (and not merely separated) vs after being divorced.
 
This was discussed in another post but there is a lot of accurate information posted here.

This is always an equalization issue, not an income issue.

If you take control of an investment property, you calculate the cost when you started living together and the cost when you started living together.

Lets say that's 220,000. Then take estimated costs of what it would be to sell the property - lawyers fees, real estate fees etc. Lets say that's 20,000.

That leaves 200,000 that will be an imputed capital gain that will appear on your tax return in the future.

Capital gains are only 50% taxable. I would calculate as 50% of the top marginal rate when you separated. If the top marginal rate is 50% then capital gains tax would be 50,000 (25% of 200,000)

You pay her 75,000 in equalization (50% of 150,000). Borrow to pay it off if you need to.

Any net rent income and capital gains you earn in subsequent years are NOT included as part of your income for child/spousal support purposes.
 
Update

Update

I finally got through all the equalization paperwork and it was decided through lawyers that the estimated amount I would pay in capital gains is deducted from the total amount of equity we have then split accordingly.
 
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