experts: real estate column Thursday, November 13, 2008

Questions, Questions

Ozzie Jurock answers reader questions on capital gains, lines of credit and tips for selling in this market.

By Ozzie Jurock

With the ongoing debacle in world stock markets I get peppered with questions. A lot of them have to do with ‘wither the market in my area' and will there be a deflation etc.

I have stated my view of inflation/deflation and 'the market' here several times. I have stated and restated my belief that we have seen tough times before and got through and we will get through these as well. Please review all Vancouver Sun stories at Here are some of this week's picks as well as a correction:

Correction and more: On a capital gains tax question, Eva Milz, CMA, pointed out that I "should have informed the reader that the Capital Gains Tax kicks in after four years." Because the Capital Gains Tax on a private residence is an oft asked question I thought I would bring it to you again. This was the original 'question and my answer' as published in the Sun:

Q: A few years ago, I bought a one bedroom suite in Yaletown. I lived in it for two years and then rented it out - now for three years. Can I deduct any expenses - cost of purchase, maintenance, legal fees, etc. - against my rental income?

(My original answer): Yes, all expenses relating to the rental income, such as mortgage interest, condo maintenance fees and utilities, are deductible. However, you will have to pay capital gains tax when you sell. The capital gain will be pro rated between the years that you stayed and the years that you rented.

Ms. Milz said further that "the Tax act states: an individual who moves out o a principal residence can retain principal residence treatment for the property, for up to four years."

Of course, I should have mentioned that. In fact when a person moves out of a personal residence because they were transferred to another city, there is no four year limitation. The person could be transferred to Toronto for instance and rent out the Vancouver condo for 15, 20, 30 years or more (not just four) and not owe capital gains tax (according to David Ingram). They merely have to make an ELECTION UNDER SECTION45(2) - something like this - "I hereby elect to treat the property at xxx Any Street, Vancouver, B.C. as my principal residence even though I did not ordinarily inhabit it:" However, there are also two caveats whether the time limit is three, four or 25 years. 1. If the person claims CCA (depreciation), 45(2) does not apply and 2. If they buy another house or live in a legal or common law relationship with a person in that person's house, only one of them can be tax free. So claiming the rental condo tax free could trigger a larger tax bill if the person had moved to a more expensive house that increased in value more than the condo. One other small point. Although the act says four years as you suggest, it is actually a practical five years. Form T2091 clearly allows you to designate the four years and then add one making an effective five. Anyone wanting to look at the form and the four plus one rule can find it here. Thanks to both Ms. Milz and Mr. Ingram. It just goes to show ... in this complicated world you need an expert accountant, lawyer, mortgage broker and Realtor.

Q: I have had a home for sale on the Westwood Plateau for two months with no offers. Last year (June 2007) I was told that the home is worth $1,050,000. I listed it well below that. It was assessed in 2008 at $940,000. Presently there are 55 listings for sale price range $800,000 to $975,000 in my immediate area. There were only two sales since Aug. 1, 2008. One was listed for $888,000 said for $771,000 and the other was originally listed for $998,000 reduced to $939,000 and then sold for $905,000. I need to sell. How can I get the place sold?

A: Well, you pretty well answered your own question. As we have written for a few months now ... expect 'the market' to reverse more than it should ... since it went up higher than it should have. Whatever it was worth last year, or whatever your assessments say is not relevant. Your property is offered in today's market conditions. Your assessments of 2008 (January) are actually based on what the Assessment Authority estimated your home was worth in July 2007. You are doing the right thing ... you looked over what is for sale and what was sold. That is all that matters. Go with your Realtor to at least seven houses or more of the 55 for sale. Compare them to yours. Then list it below what the average offering is. (Also look up on my website the free story: 26 ways to make your home sell faster.)

Q: My bank has advised me to lessen my monthly payments by rolling my car loans and my mortgage together into a home equity line of credit that will reduce my monthly payments. Is this a good idea? It's an open variable line of credit and the interest rate is five per cent. Will the interest be tax deductible?

A: Woah! 1. You have a mortgage now (which is not reported as a debt to your credit bureau). 2. If you roll it into a credit line ... the whole amount ... credit line and mortgage will be reported to the credit bureau as a debt. 3. Your interest on your residence is not deductible. If you used your credit line for personal purchases it is not deductible either.

Published in The Vancouver Sun on October 30, 2008

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All articles by Ozzie Jurock

Related Links:

Ozzie Jurock

Form T2091

Real Estate Action Group

Related Articles:

26 Ways To Make Your Home Sell Faster

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