Personal Tax -> Real Estate -> Rental Property Purchase or Sale
Purchase and Sale of Rental Property
The capital cost of your rental property is recorded in your personal tax return on form T776 Statement of Real Estate Rentals. The cost of the building is recorded in the capital cost allowance schedule on this form, in the additions area. The cost of land purchased during the year is recorded at the bottom of form T776 on line 9923. The cost must be recorded in Canadian $.
When a rental property is purchased, the split of cost between land and building should be agreed upon by the vendor and purchaser. The vendor may want a higher portion of the selling price to be allocated to land, in order to avoid recapture of capital cost allowance, if any has been claimed. The purchaser may want a higher portion of the purchase price to be allocated to building, in order to claim more capital cost allowance.
For more information on capital cost allowance (CCA), see our article on property rental deductible expenses - Property Rentals link below.
For information on the deductibility of interest expense on funds borrowed to purchase rental property, see our Property Rentals link below.
When a rental property is sold, the amount that is the lower of cost or proceeds from the sale of the building is entered in the capital cost allowance schedule on the T776. Any negative difference between this amount and the undepreciated capital cost (UCC) will be brought into income as recapture. This amount will be nil if no capital cost allowance has ever been claimed for the building, and proceeds are greater than cost. If there is a balance remaining in the CCA class after all assets in the class have been sold, there is a terminal loss which can be used as a deduction against business or property income. The proceeds from the sale of the land is entered on line 9924 of the T776. Any capital gain or loss (proceeds less cost) is recorded on Schedule 3. Generally, allowable capital losses can only be used to reduce or eliminate taxable capital gains.
Canada Revenue Agency (CRA) has a Rental Income Tax Guide (T4036) which goes into detail about deductible expenses, capital cost allowance, deemed dispositions, splitting of expenses between personal areas and rental areas, and most issues regarding property rental.
See all our articles related to Property Rentals.
If your rental property is in another country and the cost exceeds $100,000 Canadian, including the cost of any capital improvements made after the original purchase, then you must complete form T1135, Foreign Income Verification Statement. There are penalties for not completing this form.
Tax Tip: Before purchasing property for rental purposes, talk to a professional accounting/tax advisor, and know the tax rules!
Revised: March 02, 2018
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