Selling a rental property? Should you take back a mortgage?
A vendor take-back mortgage can allow a capital gain to be reported over 5 years. Before the capital gains change (to tax 2/3 of a capital gain), this was mostly a tax deferral plan. Now, it can produce a real savings as well.
Why?
It can allow an individual to claim $250,000 of capital gains at the 50% rate, not the higher 2/3 rate, by spreading out the gain. There is now a real savings, even if you are in the top tax bracket.
A capital gains reserve can shelter up to 80% of the capital gain in the year of sale. A minimum of 20% must be recognized each year. So basically, the maximum period of the reserve is 5 years. To match this, arrange to receive 20% of the proceeds each year, provided the purchaser is suitably credit worthy.
Interested in more tax planning ideas?
Each year, we put on a Tax Seminar Series with important updates and tax planning ideas. It has been attended by thousands of CPAs over the years. Most repeat year after year.
Find out how you can register and learn new tax planning ideas like those above for capital gains.