Welcome to our final part on important things you should know about investing in real  estate. I hope you’ve learned a lot along the way and that these tips will be just as  useful as the ones you’ve already learned. 



9. There are three kinds of Taxes you’ll need to consider when buying an investment  property:


• Land Transfer Taxes – Land transfer taxes are paid by the Buyer when they take  possession of the property and are a percentage of the sales price.  

• Income Tax on the rental income – Rental income is considered taxable, and the  net profit you make will be added to your income and taxed. The good news is  you can write off a lot of expenses to decrease your profit (mortgage interest,  property management fees, condo fees, utilities, etc.).


• Capital Gains taxes – When you sell your investment property, you’ll be subject  to Capital Gains Taxes. At the time of writing, Capital Gains Taxes are 50% of profit,  meaning that 50% of the profit you make (after selling expenses) will be added to  your income and taxed at your regular income tax rate.



For Example: 

Purchase price : $400,000 

Sold price: $500,000 

Costs to sell: $25,000


Therefore, Gain in value = $500,000-$400,000- $25,000 = $75,000 Under current capital gains rules, an investor would pay taxes on 50% of the $75,000  profit.


There are lots of intricacies when it comes to taxes, so make sure to talk to your  accountant to determine your individual tax scenario.



10. If you buy a duplex (a house with two apartments) and live in one of them yourself, be careful. If you live in less than 50% of the house, you’ll pay capital gains tax on the  whole house and lose your primary residence tax exemption. This is one of the most missed points, and one that could cost you tens of thousands of dollars: if you rent out  more than half your house (and declare the income, and write off the expenses), when it comes time to sell, the CRA will consider it an investment property (notwithstanding #12  below) and you will pay capital gains tax on the increase in value since you bought.  Again, talk to your accountant.


11. As an investor, your qualification for government Buyer programs is limited. The First Time Home Buyer RRSP Plan and Land Transfer Tax Rebate for first time  buyers both only apply to your primary residence. Sorry.


12. If you live in it, it doesn’t really count as an Investment Property from the bank’s  perspective. If the house is your primary residence, even if you only live in one part of  it, then you can’t run the mortgage numbers as an investment property from the bank’s  perspective (although that’s usually a good thing). If there are leases in place or the  bank’s appraiser can back up the potential rent from an apartment, then they may be  able to use 80% of that income to reduce risk, but that’s all.




Have questions? I have answers, so don’t be afraid to get in touch! You can reach me  by calling 905-683-7800.




 

Thanks for reading today’s BLOG!!!

Brian Kondo
Sales Representative / Team Leader
The Brian Kondo Real Estate Team
Re/Max Hallmark First Group Realty Ltd.
905-683-7800 office
905-426-7484 direct
brian@briankondo.com
www.BrianKondo.com
www.BrianKondoTeam.com

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