Help With Canadian Capital Gains Reporting On Quicktax

Q: I bought a property about 15 years ago for about $150K and then rented it while I was out of country. About 5 years ago I began to claim UCC class 3 on the building for $120K. Over the past 5 years I've claimed about $23K as UCC. I sold the property last year for $250K (total price, building and land), so the Capital Gain is $100K and I should be taxed on $50K. My employment income was around $40K, and I have other rental income for $13K; total $53K. If I enter a disposition of the property on the T776 form in area E at $250K my tax PAYABLE is working out to $50K. Yikes! Is this right? It should be around half of the capital gain which is $25K. On line 126 my income is displaying as $100K. I think I need to enter the disposition of the class 3 property separately in T776 Area E and the disposition of the land somewhere else, but I'm not sure where to enter the land portion. Can anyone enlighten me?

A: See a qualified tax accountant ASAP. You likely also have deductible expenses on the property, sale, property taxes, assessments and the like. Unwinding that to your favour will cover their fees. Not H&R either, get a real tax specialist. You have a couple of issues here in that it is very unlikely that a rental property was a class 3 building. More likely, it was a class 1 and you've been using the wrong rate for the last three years. Further, depreciating property at a time when real estate values were rising almost everywhere borders on being self-destructive. Teh $23,000 CCA you've claimed is going to come back into income at the full rate. This will be calculated on the same form that you've been using to generate the CCA claim in the first place. It is called "recapture of CCA" and is equal to the difference between the current undepreciated capital cost (UCC) of the building and the acquisition cost of the building. Any gain over that will be a capital gain on building. Example, you paid $50,000 for a building, took $15,000 CCA over a period of years and then sold the building for $55,000. You have $15,000 "recapture" included in income plus you have a $5,000 capital gain, for a total inclusion of $17,500 in your taxable income. The land portion will be calculated separately...... The land is reported on Schedule 3. Enter a dispositiion there along with the costs of the disposition. I'd get an accountant on this one, you've probably done yourself a serious disservice here. Depending where this property is located, you'd likely have been better off to elect under section 45 and to retain the Principal Residence status of the home for up to four years after you left it. If you had done that, you'd have paid taxes on the rents, would not have taken any CCA, and would not be dealing with recapture and capital gains on the disposition today. That accountant will review what you have done and what might be changeable going backwards (it's tough to make retroactive CCA changes, but the incorrect classification may facilitate some accommodation here). The accountant will also review the allocation of land and building on the total acquisition and disposition. That allocation will drive the numbers at the end and is to some extent, manageable. Finally, there is a long-shot possibility of filing that election for you. You've cost yourself some money here by simply not knowing what you could or should do. A pro will get at least some of it back for you. .

Help With Canadian Capital Gains Reporting On Quicktax

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