Turbotax: Capital Gains

 

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Q: How does one report the sale of a rental property? A: As shown in the video

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Relevant Material: "In Canada, a capital gain is the profit from selling a capital property like a rental property or stocks. Only 50% of the capital gain is taxable and added to your income. TurboTax simplifies the reporting process by guiding you through the necessary forms and calculations. 

Capital Gains on Rental Property
When you sell a rental property, the profit is generally considered a capital gain, which you must report to the Canada Revenue Agency (CRA). 
  • Calculating the gain: The capital gain is the proceeds of disposition (selling price minus expenses to sell, like legal fees or real estate commissions) minus the Adjusted Cost Base (ACB) of the property. The ACB includes the original purchase price and any capital expenses (e.g., major improvements, like a new deck or upgraded flooring).
  • Capital Cost Allowance (CCA) recapture: If you claimed CCA (depreciation) on the property during the years you rented it out, that amount is "recaptured" upon sale and is fully taxable as ordinary income, not at the 50% capital gains inclusion rate. Claiming CCA also reduces the ACB, potentially leading to a larger capital gain.
  • Principal Residence Exemption (PRE): If the property was solely your principal residence for the entire time you owned it, you may be exempt from capital gains tax on the sale. Special rules apply if you converted your principal residence to a rental or vice versa, or if you only used a portion of it for rental income. 
Capital Gains on Stocks
The process for stocks is similar to property, but usually less complex regarding cost base adjustments. 
  • Calculation: The capital gain or loss is the selling price minus the ACB (purchase price plus commissions/fees).
  • Tax slips: You typically receive tax slips (like T5008, T3, or T5 slips) from your brokerage that report the proceeds of disposition, which simplifies the reporting process.
  • Losses: Capital losses from stocks can only be used to offset capital gains from any capital property (stocks, real estate, etc.). You can carry these losses back up to three years or forward indefinitely to use against future capital gains. 
Significance of TurboTax
TurboTax simplifies the tax filing process for capital gains through its structured interface. 
  • Step-by-step guidance: The software walks you through reporting income and expenses, helping you determine the correct calculations for your ACB, proceeds of disposition, and any CCA recapture.
  • Correct form population: TurboTax automatically populates the required forms, such as Schedule 3, Capital Gains (or Losses), and the T776, Statement of Real Estate Rentals, with the information you provide, ensuring accuracy.
  • Version requirement: For users with capital gains or rental property income, the TurboTax Premier version (or Self-Employed for more complex situations) is typically recommended as it includes the necessary forms and specialized guidance.
  • Expert assistance: TurboTax offers options like Assist & Review or Full Service, where you can get unlimited help or have a tax expert handle the filing for you. 
For detailed information and forms, you can refer to the Canada Revenue Agency website and TurboTax Canada's tips section. .." (Google) 
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