Whether selling a Type A or Type B property, vacation home sales differ from those of their primary home counterparts. From taxes to appreciation to staging, there are a variety of factors to keep in mind. To get the most from the Malahat North home sale, keep the following financial and practical tips in mind.
How Capital Gains Work
Capital gains apply to all sellers of secondary homes. This refers to any appreciation that occurred from the time the home was purchased to the time it was sold. So a property that was purchased for a net $75,000 and sold for a net $125,000 would be taxed at up to $50,000. Primary homeowners are typically allowed to deduct any capital gains from their sale, but vacation homeowners will not be given the same rights.
How Much a Seller Pays
Capital gains are taxed based on the seller's personal income. However, it should be noted that half the appreciation of the property counts as part of the seller's income. So, if a seller made $50,000 in appreciation, they can tack $25,000 onto their yearly earnings, potentially bumping them up into the next tax bracket. Those in the top tax brackets can be taxed at 40% or more on capital gains. Exact laws and percentages vary by province, so sellers should consult a real estate agent before estimating their seller's budget.
Streamlining Your Finances
Sellers are allowed to deduct a variety of fees associated with the sale of their property:
- All closing costs
- Real estate agent/broker fees
- Major home renovations
- Advertising costs
- Attorney fees
Home renovations in Canada can be tricky, as each remodel is typically judged on a case-by-case basis. If sellers are approved, the improvements are generally added to the purchase price of the home as opposed to reducing the sale price. So if a person spent $10,000 on their $70,000 vacation home, then the purchase price would be adjusted to $80,000, thus decreasing the total capital gains.
When to Sell
Each province will have its own buyer's season (e.g., winter for ski season, etc.), so sellers may need to research or wait a few months before putting their home on the market. Even if it seems like practically every other vacation home seller is putting their property on the market during this time, it typically makes more sense to wait until there are a plethora of buyers. As with a primary home, sellers need to make sure that the home is clean and staged correctly to spark the right amount of interest. Whether buyers primarily want to use it or rent it out, the whole property needs to be showcased in the best possible light.
Paying for Capital Gains
Secondary homeowners can donate their capital gains to charity if they're hoping to receive a tax credit. A financial planner can help a seller determine whether or not the tax credit will make the donation worth it. If sellers need additional time to pay their capital gains tax, they can also apply to the Canadian Revenue Agency for an extension. (This is generally recommended for sellers who go through a particularly lengthy escrow.)
Selling a vacation home can be rife with questions and uncertainties. Whether trying to find the right price or wondering how to file, having the right real estate partners at your side can help. Finding a financial expert or agent with experience in secondary home sales is the first step.
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The Neal Estate Team is your #1 source for all of your Victoria BC real estate needs. Get in touch with us online or by phone at (250) 386-8181 to speak with a Victoria real estate buying or selling expert today. With decades of experience as a top selling Victoria REALTOR® and ranked in top 1% globally with over 4,000 transactions and $1 Billion SOLD, Ron Neal & The Neal Estate Team have the industry experience and market knowledge to help you make smart and informed buying or selling decisions.