Selling a vacation home starts with understanding the differences between a second and a primary home. Not only will the rules change for listing the home, but sellers have to be ready for new tax laws that apply only to vacation homes. While talking to a real estate agent with experience in second home sales is the best way to get all your questions answered, understanding some basic distinctions is a good way to get started when selling their home.
Deciding When to Sell a Home
All home selling is cyclical—there are certain months when people want to buy and others that are not as popular. However, second homes can follow this rule more so than standard home sales. For example, homeowners with a property near a ski chalet may only see winter buyers, because investors want to wait and see just how popular the resort will be.
And even if there's more competition during the popular months, sellers can still use the sheer number of buyers to their advantage. If they stage the home correctly, they may even inspire a bidding war that pushes the home sale price in the right direction.
Preparing for Taxes
Capital gains refer to how much appreciation occurs from the time an asset is bought until the time it's sold. They're usually associated with the stock market, but they apply to any major asset. So if the second home was purchased for a net $85,000 and then sold for a net $200,000, the capital gains would be $115,000. In the case of a normal home sale, capital gains are usually deducted. However, with a second home, half the appreciation is added on to the homeowner's yearly income and then taxed according to the resulting bracket.
So if the owner already makes $100,000 a year in the example above, then their income becomes $157,500 (or half the $115,000 appreciation added to their yearly income). Exact percentages for each homeowner's taxes will vary by province, but all sellers need to account for capital gains if their home has gone up in value.
Abating Your Capital Gains
There are a few ways to lighten the burden of capital gains:
- Closing costs: Sellers are allowed to deduct the closing costs from their appreciation. From real estate agent fees to inspector charges to attorney costs, these fees can be lumped together.
- Advertising costs: Any fees the seller spends to market the home (e.g., professional photos, videos, etc.) can also be deducted from the sale price of the home.
- Home renovations: Major home renovations can be added to the purchase price of the home, thus lessening the total appreciation. However, not all home repairs count toward this benefit. Sellers may need to check with city officials to find out if their work qualifies.
Sellers are also allowed to donate their capital gains for a substantial tax credit, but it usually takes a financial planner to advise a homeowner if this option is worth it. Sellers who need an extension to pay their capital gains can file through the Canadian Revenue Agency. This is highly recommended if the escrow period runs longer than expected.
Taking the time to run the calculations can help sellers prepare for what their yearly budget will look like. Talking to the right High River real estate expert can also be a good way to get questions answered so sellers can make the best decisions.
Justin Havre is the top producing REALTOR® with RE/MAX First, Canada's very first RE/MAX brokerage. Calgary real estate is his passion; Justin specializes in Southwest & Northwest Calgary homes for sale. He can be reached at 403.217.0003 or contacted through this site.