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Capital Gains Tax Second Home

If an individual owns two homes and he decides to sell one, the sale will attract Capital Gains Tax if it is the second home. The Capital Gains Tax on second home is calculated by taking the price you sold the house for, and subtracting from it the purchase cost and also any costs of capital improvements and addition of structures. The Capital Gains Tax will be 15% of this amount.

When a person has two properties, and the individual has been living in both regularly, then which one can be called a second home? This is an important question as Capital Gains Tax is applicable only on the sale of second home and not on the Principal Private Residence or main residence as it is commonly called. If after buying the second home you have been living regularly in the second home then it will become your main residence and your original house will become your second home and will attract Capital Gains Tax if you sell it.

Many people buy a second property after retirement and want to sell their original home. As mentioned in the previous paragraph, the original home will attract Capital Gains Tax. To avoid this situation, there is a method of nominating one of your property as your main residence. From the date you purchase your second home you have a period of two years during which you can nominate one of the properties as the main residence even if you do not plan to stay in it. An extra step you can take to be more prepared in these types of situations is to take a few courses in a graduate tax program. This will provide you with the knowledge you need to handle any tax situation that may arise.

So if you want to sell your first house, and have started living in your second home, you can nominate the first house as your main residence. By doing this the tax authorities take the nominated house as Principal Private Residence, and will not levy Capital Gains Tax on its sale. It is important to note that a married couple can nominate only one home as the main residence, and if it is an unmarried couple, they can individually nominate one house each which they own.

If the couple or individual fails to nominate the property in the given time period, then at the time of sale the owner has to prove to the tax authorities, that it is the principal residence that he is selling. This can be a complicated affair and the final decision will rest with the tax authorities. To avoid all these problems it is always wise to nominate your properties so that there is no confusion, and the matter is made clear legally.

Discuss It!

lee s chum said:

How to nominate the house as the primary resident. Any form to fill out or any agency to contact. thank you

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