Imagine buying a home and then selling it without penalty after a brief period of time. This situation can have a significant impact so it’s vital to take in some information to avoid pitfalls and maximize your profit. Review these points before selling your house shortly after its purchase.
What exactly is a principal residence?
It’s where you spend a majority of your time. It could be a single-family or mobile home, duplex, apartment or condo, or even a trailer. On the other hand, a secondary residence is associated more with vacation vibes, whether it’s a chalet in the woods or a condo by the sea. In other words, you don’t occupy it permanently (or maybe not at all).
Did you know that each year you have the right to choose which property you designate as your principal residence? This major decision has a direct impact on your finances. Among other things, you have to take into account the rules governing taxable capital gains on the sale of a home.
You might be asking yourself: how can I know if I’m making the best decision? This is where Confia gets involved. Our real estate agency offers a personalized pairing service with real estate brokers who will understand your particular needs.
Start a buying or selling projectHow long do you have to live in your principal residence before selling it?
So you’ve decided to put your property up for sale. Hold on a minute! The length of time you've lived there must be taken into account. Note that this occupancy period begins as soon as you take possession of the property.
Minimum occupancy period
A little background: you move into your new house and it’s the start of an exciting chapter in your life. Then after a bit of time you want to sell it. You need to be aware of some conditions to follow. To comply with the anti-flip rule (flipped property sale), you have to hold it for at least 365 days.
Indeed, since January 1, 2023, a new regulation has been in effect to deter real estate flipping. You must respect the stipulated period to ensure that profits from the sale of your principal residence are not considered as taxable business income by the Canada Revenue Agency (CRA).
During this timeframe, every moment spent in this dwelling counts, even if you spend more time at another residence. The important thing is that you or a family member stay there at least a few weeks every year (not as a tenant), making this house a real home.
Criteria needed to qualify for a tax exemption
An exemption refers to situations in which a person is relieved of the obligation to pay certain taxes related to the ownership or sale of real estate.
Unexpected things can happen in life sometimes. If you ever have to sell your principal residence less than 12 months after buying it, you may have to pay taxes on the profits earned. That being said, there are extraordinary circumstances where you would be able to request an exemption. Some exceptions include a death, separation, serious illness or even expanding your family.
Discover two tax advantages associated with the sale of a principal residence
Having a solid understanding of the tax implications is crucial in order to optimize your finances and avoid any unpleasant surprises when it comes to parting ways with a house. The profits associated with the sale of a principal residence can play a decisive role in a real estate transaction.
1. Tax exemption for a principal residence
If you sell a property designated as a second home, you will have to pay tax on some of the gain. However, selling your principal residence can give you a tax exemption. This represents a significant saving, allowing you to keep a larger share of your net profit.
Revenu Québec stated in 2024: In general, half (50%) of a capital gain on the sale of your house is taxable. However, a capital loss is not deductible.¹
2. Capital gains
You must report capital gains on your income tax return, whether you sell a principal or secondary residence. This amount, known as the capital gain, is usually calculated by subtracting the sale price of a property from the initial purchase price.
For principal residences, the capital gain may be fully (or partially) exempt from income tax, provided that certain conditions are met (for example, not selling the property within 365 days).
Tax implications vary depending on how long you’ve lived in your house. The longer you’ve lived there, the less tax you'll have to pay on gains realized on the transaction. The sale of a second home can have more complex repercussions, with part of the capital gain likely to be taxable.
It’s strongly recommended to contact a tax specialist to get personalized recommendations based on your situation.
Calculating the gain and declaring the capital gain on the sale of real estate for tax purposes
Several elements come into play when it’s time to declare the capital gain on a property sale, such as the type of property sold and amount acquired. If you’re used to filing your tax returns, you could manage this on your own.
Otherwise, hiring an accountant would be a wise decision to make sure everything is done properly. They can advise you on declaring capital gains.
Why use Confia’s services to sell your principal residence?
There are several complex steps to selling a home and there’s often a lot of emotion involved. Benefit from expert advice and get answers to your questions before deciding on the broker who best meets the specific needs of your project. Take advantage of the personalized pairing service offered by the Confia real estate agency. You can browse through a selection of profiles to find the real estate broker most suited to you. Here’s what you can expect:
Support every step of the way
Having a person by your side helping you navigate through all the steps of a sales process is an invaluable asset. The broker you chose will be there to provide total support from setting the initial sale price, managing visits to the paperwork. Challenges can often arise even in the simplest situations. This is when a specialist’s experience will come in handy.
Streamlined and expedited process
Selling a house takes a lot of time and organization. A real estate broker can lighten this load by answering your specific questions, coordinating visits and handling all logistical details. Their precious help means you don’t have to manage this and it can speed up the sales process.
The broker will also direct you to other professionals so you have all the necessary information about a real estate transaction, like in the event of a capital gains exemption.
Peace of mind coming your way
Think of your broker as a safety net. You hope that everthing goes smoothly but sleep easier knowing you can count on them at all times. Remember that the professional liability insurance fund offers you additional protection.
To sum it all up, using the services of a real estate broker recommended by Confia during a sale is an effective way to maximize your property’s visibility and ensure that the more complicated details get sorted. Now you know what to do to get advice tailored to your situation!
Find a broker recommended by ConfiaFAQ
What is the recommended holding period before selling your principal residence?
To avoid capital gains from the sale of your principal residence being considered as taxable business income by the Canada Revenue Agency (CRA), you must occupy it for at least 365 days, except in certain exceptional situations.
Note: There are three exceptions to the capital gains exemption rule for the sale of a principal residence: years of ownership, use (in whole or in part) of the property to earn income and a flipped property sale.
You should definitely consult a tax expert or accountant to see if your situation applies to any of the exceptions.
What are the reasons to wait five years before selling your home?
You don't have to wait five years before selling your property but it’s worthwhile to note that the real estate market is often subject to short-term fluctuations. Your home may benefit from economic and real estate cycles, which will increase its market value. If you’ve done some renovations since buying your home, this could also increase its value and consequently the sale price.
Can I sell a home that I recently bought?
There’s nothing stopping you from selling a house that you recently bought but there are tax consequences to consider. Before making this decision, find out about potential mortgage prepayment penalties (if applicable), as well as capital gains rules on the sale of a principal residence.
It’s a wise move to seek support. You’ll be in a better position to assess the reasons for a sale and navigate more easily through the transaction process.
Contact Confia real estate agency¹ REVENU QUÉBEC. “Selling your property (house or apartment building),” [Online], 2024. [https://www.revenuquebec.ca/fr/citoyens/votre-situation/achat-vente-revente-precipitee-location-ou-renovation-dune-propriete/vente-de-votre-propriete/] (Accessed July 26, 2024).