Tax Documents Required for Selling a House in Canada
Tax Documents Required for Selling a House in Canada
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1. Documents from the Purchasing Lawyer
Title Documents: These prove your ownership of the property and establish the initial Adjusted Cost Base (ACB).
Statement of Adjustments: This details adjustments made at the time of purchase, such as prepaid property taxes or water bills. These costs are added to your purchase price and affect the calculation of capital gains when you sell.
2. Purpose of the Property and Any Changes in Use During Ownership
Purpose: This includes whether the property was a principal residence, rental property, or vacation home. If rented, you need to determine if rental income was generated, which affects your income tax return.
Changes in Use: If the property's use changed (e.g., from principal residence to rental), a change of use report is required, which may defer capital gains.
3. T1 Tax Returns for Rental Years
T1 Tax Return: If you rented out the property, you must report rental income on your T1 tax return, specifically on Form T776 (Rental Income).
Capital Cost Allowance (CCA): If you claimed CCA on the rental property, you would report it on Form T776. Note that while CCA reduces taxable rental income, it also reduces the ACB, affecting capital gains when you sell. For principal residences, CCA is usually not claimed to preserve the principal residence exemption.
4. Documents from the Selling Lawyer
Selling Costs: These include real estate commission, advertising costs, and legal fees, which can be deducted to reduce capital gains.
5. Renovation Costs
Renovation Costs: If you renovated the property before selling, these costs can be added to your ACB, reducing taxable capital gains. Keep invoices and contracts as proof.
By accurately reporting rental income, CCA, and related expenses, you can minimize your overall tax burden and ensure correct calculation of capital gains when selling. If you claimed CCA on rental income, be aware of its impact on future capital gains.
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