With our high interest rate environment, it’s no surprise that people are feeling stretched thin these days. In particular, people who have invested in real estate are making headlines as they are experiencing both high carrying costs and lower demand for their asset. Some investors are considering selling their rental property given these costs. Read on to learn more about what that could mean from a tax perspective.
When you sell a rental property, you may have either a capital gain (when you sell a rental property for more than its cost basis) or a capital loss (when you sell a rental property for less than its cost basis). This is because rental properties do not qualify for the principal residence exemption in the same way that your personal residence would.
Furthermore, if you owned the property for less than 365 consecutive days before the disposition, you may have what the government considers a flipped property, which comes with its own considerations.
You need to report any capital gain (or loss) on your tax return for the year the asset was sold. Read more about this here. If you have a capital loss, as some investors may experience in the current environment, you can deduct this loss against other capital gains you may have. For depreciable property (i.e., property that wears out as it is used), you may also have a terminal loss or CCA recapture.
You can find out more about selling a rental property on the government’s website here.