Expert: Derek Hamilton - 8/18/2011

Question
QUESTION: Hello,

I am in a big dilemma because of the economy. I had put a deposit on a new construction house last November which is supposed to be ready next year in May. Now I don't want to sell my current home and move. Ideally I would want to make a little profit after selling the new house but have come to know that I would need to pay capital gains in such a case. What is my best option- should I sell the house after closing or should I put it on rent, which is financially profitable? Or is there be a better option? another possibility is to rent my current home ( I have lived in this house for 6 years)and move to the new house, live in it for a year or so and sell it. Do I still pay capital gains if I sell it after a year?
New House is bigger mortgage than what I currently have.
Please advice what is the best option considering that I don't really have to move.
Thanks,
Amy

ANSWER: Hi Amy,
Why don't you wait for the new home to be finished, then put it on the Market
to see if you can make a nice little profit!! Real Estate has been a very good investment for 15 years. If it doesn't sell you can put it up for Lease?  You will need to pay Capital Gains when you sell it,if it's in your name. To avoid paying Capital Gains You could sell your existing home then the new property would be your only personal property.

Good luck!
Derek
 

---------- FOLLOW-UP ----------

QUESTION: Thanks Derek,
please clarify further,

If I move to my new house and rent my current house do I still pay any capital gains/taxes when I sell the new house after a year or so? How long does one have to live in a house to avoid capital gains?

If I sell the new house right after closing how much capital gains do I have to pay.... is it a certain percentage of the profit? In other case if I rent out the new house to someone else and then sell it after a year or so will I still pay capital gains?

Answer
Hi again,
You don't pay any capital gains if it's your principle residence.
A home becomes a principle residence after you have lived there for three to six months in Ontario.
Please speak to your Accountant or Real Estate Lawyer about your personal Real Estate holdings and they will inform you about everything you need to know relating to Capital Gains.
You can own and live in one property tax free!! You can deduct renovation and any other  expenses against your capital gains tax.
Hope this helps.