Capital Gains Tax on Real Estate: How Much Will You Pay?

April 15, 2025
Capital Gains Tax on Real Estate: How Much Will You Pay?

Introduction

When selling real estate, capital gains tax applies if the property has increased in value. The amount of tax depends on how long the property was owned, whether it was a primary residence, and the seller’s overall taxable income.

 

Understanding capital gains tax on real estate is crucial for homeowners, investors, and business owners looking to sell property without unnecessary tax burdens.

 

1. When Does Capital Gains Tax Apply to Real Estate?

Capital gains tax applies when:

  • Selling a rental property or investment real estate.
  • Selling a secondary home, vacation home, or land.
  • Flipping real estate for profit (which may also be classified as business income).

 

2. How Is Capital Gains Tax Calculated?

  • Capital gain = Selling price - (original purchase price + eligible expenses).
  • Only 50% of the capital gain is taxable, meaning if a property appreciates by $100,000, only $50,000 is subject to tax.
  • Capital gains tax is based on the seller’s marginal tax rate.

 

3. Exemptions and Strategies to Reduce Capital Gains Tax

  • The Principal Residence Exemption (PRE) allows homeowners to avoid capital gains tax on their primary residence.
  • Claiming eligible expenses, such as renovations and legal fees, can reduce taxable gains.
  • Deferring capital gains using a structured sale or reinvesting in tax-deferred opportunities.

 

Conclusion

Capital gains tax on real estate can be significant, but strategic tax planning can reduce or eliminate the tax burden. Homeowners and investors should ensure they maximize available deductions and exemptions. Tax Partners can help real estate sellers develop a tax-efficient strategy to minimize capital gains tax liabilities.

 

This article is written for educational purposes.

 

Should you have any inquiries, please do not hesitate to contact us at (905) 836-8755, via email at [email protected], or by visiting our website at www.taxpartners.ca.

 

Tax Partners has been operational since 1981 and is recognized as one of the leading tax and accounting firms in North America. Contact us today for a FREE initial consultation appointment.

 

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