What Are Capital Gains?
When you sell a property for more than what you paid for it (including improvements and selling costs), that’s a capital gain. The good news? You don’t pay tax on the full amount. As of 2024, 66.7% of your capital gains are taxable – but with the right strategies, you can reduce your tax burden.
Maximizing Your Tax Savings
1. The Principal Residence Exemption
If you’re selling your primary residence, you may not have to pay any capital gains tax at all. This can save you thousands, but keep these key rules in mind:
- You can only designate one property as your principal residence per family per year.
- The sale must be reported on your tax return, even if you’re claiming the exemption.
- The exemption typically covers your home and up to 1.24 acres of land.
2. Business and Investment Properties
If you own a business property or rental real estate, the rules are different, but there are ways to minimize taxes:
- The Lifetime Capital Gains Exemption (LCGE) was increased to $1.25 million in June 2024 and is now indexed to inflation. This means you may be able to sell certain qualified small business corporation shares tax-free up to that amount.
- Rental properties do not qualify for the principal residence exemption, but you can still lower capital gains taxes by maximizing deductions and recording all eligible expenses.
Smart Strategies to Reduce Capital Gains Taxes
1. Timing Matters
- Consider spreading the sale over two tax years using a capital gains reserve to manage your tax burden more efficiently.
- If market conditions allow, selling in a year when your income is lower can help reduce the tax impact.
2. Keep Detailed Records
- Document all renovations and improvements to your property, as these costs increase your adjusted cost base (ACB) and lower taxable gains when selling.
- Keep receipts for legal fees, commissions, and selling expenses to ensure maximum deductions.
3. Plan Your Principal Residence Designation
If you own multiple properties, strategically designating your principal residence can maximize your tax savings over time. Consult with a tax professional to ensure you’re making the best decision.
What To Do Next
Navigating real estate and taxes can be complex, but you don’t have to do it alone. Here are your next steps:
- Review your property documentation to ensure all renovations and improvements are recorded.
- Consult with a tax professional to discuss your specific situation.
- Plan ahead – tax strategies work best when you think long-term.
📍 Related: Principal residence and other real estate
Get Expert Guidance on Real Estate & Tax Planning
Looking for professional advice on buying, selling, or planning your next real estate move? I’m Peter Thompson, and my team specializes in helping homeowners make smart, tax-efficient real estate decisions in Quebec.
Whether you need guidance on tax strategies or expert insight into the local market, we’re here to help.
📞 Call Peter Thompson: (438) 500-8344
📩 Email: peter@peterthompson.ca
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