Q&A

Is there a way to avoid capital gains tax?

By Jackie DavisJackie Davis

cottage family

4 comments

The Question

Is there any way to avoid capital gains tax entirely while handing down the cottage?

—Tucker Holden

The Answer

Only in Cottage Q&A Dream Land, where there are no weeds in the lake, the basement is never damp, and everybody gets along with their neighbours. In other words, no. But there are ways to reduce it. The capital gains tax will be automatically triggered if the kids are made co-owners of the cottage, if it’s sold or gifted to the kids entirely, or if it’s passed down after you die. Say you’d like to transfer the entire cottage to the kids now. One strategy is to hand over the cottage in stages. For example, 20 per cent each year for five years. The capital gains tax in each year will be less than if the transfer happened all at once.

Another strategy—whether you transfer the cottage now, or through your will—is to designate the cottage as your principal residence, in which case, it’s exempt from the capital gains tax. If your cottage has increased in value more than your house, this may make sense. Of course, you can only designate one property as your principal residence at a time, so you’ll avoid the capital gains tax on the cottage, but not on your house.


4 comments

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sunflowerkathy@myself.com

Jan. 17, 2013

10:58 am

My understanding is that if you designate your cottage as principal residence, that will trigger capital gains on your home when you sell it, so be careful. Does anyone know to calculate how much capital gains tax you would have to pay?


shaelene1@hotmail.com

Jan. 31, 2012

9:59 pm

Yes you are right, you would then not be required to pay capital gains taxes in this case. I would like to know exactly how to designate the cottage as a primary residence when you also own a home. Are there certain steps that must be taken?


shaelene1@hotmail.com

Jan. 31, 2012

9:56 pm

Yes you are right, you would then not be required to pay capital gains taxes in this case.


frprof22

Jan. 24, 2012

5:01 pm

What if, upon retirement, I sell my home and move into the cottage full-time. If I decide to sell the cottage (now my principal residence), would it not avoid paying capital gains taxes??


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