CG tax on rural home

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brucecohen
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CG tax on rural home

Post by brucecohen »

A developer has offered to buy a friend's home on 19 acres and I'm trying to figure out her tax position.

CRA automatically treats 1.2 acres as tax-free principal residence. The home is close to the road so land needed for driveway and parking might bring that to 2 acres.

All 19 acres will be tax-free if they could not be sub-divided at the time she purchased the land, but that might take some time to research. So let's say 17 acres -- 89% -- of the land is taxable. (Just occurred to me that minimum lot size in many rural Ontario townships is 10 acres so only 9 acres would be potentially taxable but it'll take some time to check that.)

Much of the potentially taxable land is floodplain and thus of little value. ISTM she should have a land use planner or appraiser separately document the value of the homesite and the other 17 acres. I reckon that only the second, much lower, value would be taxable. Anyone know?

I reckon her ACB cannot include the cost of improvements to the home because it's tax-free and I'm not aware of any improvements made to the raw land. But can the ACB include a pro-rated share of the mortgage interest she has paid over the years? ISTM if the land is taxable, the interest should be part of the ACB. Also, a pro-rated share of fees and taxes paid to buy and sell the land. Yes?

Thanks
twa2w
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Re: CG tax on rural home

Post by twa2w »

Bruce, assuming the land was subdividable and she is faced with valuing the property, she may face a couple of issues.
Any appraiser should value the land on highest and best use. Since the property is being bought by a developer, I would presume there is a fairly high value to the land and it is now able to be subdivided. In fact if the developer intends to teardown her house, the appraiser may only give a value for land ie the 1.2 acres around the house and the remaining acreage. However this may depend on if the appraiser is aware of the sale. Appraisers work on a volume basis so I suspect you will have to guide and provide info on some of the property being flood plane and the type of evaluation required ie house and 1.2 hectares and a separate valuation on the remaining land. And this will be expensive.
So, more simply, to save costs, ask the appraiser to appraise the house and 1.2 acres( or allowable land). Then simply subtract this value from the sale price to get the value of the remaining land.
Use the same ratio to breakdown the original ACBs of thevtwo pieces.

In terms of deducting interest, she is out of luck AFAIK. Think of the extra land like a cottage. It is for personal use and there was no intention to earn an income from it. You cannot deduct interest from a mortgage on a cottage ( unless you rent the cottage) as there is no income to offset.
As far as the real estste and legal fees I am not sure but again would be no different than a cottage I assume the prorated expenses could be deducted.

Ok it is late and I am rambling. Hope this makes some sense.
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patriot1
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Re: CG tax on rural home

Post by patriot1 »

twa2w wrote: 01 Feb 2018 02:14You cannot deduct interest from a mortgage on a cottage ( unless you rent the cottage) as there is no income to offset.
True but that's not really answering the question, which is can you include interest in ACB. The answer is no for any investment, as it's an expense not a capital cost. I think there might be an exception for something like construction financing which is required to create an asset, but that's clearly not the case here.
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