Sale of Rental Property T776 and Schedule 3

[macnec]

I sold a rental property and have proceeds at disposition. If i enter the details of the disposition in the T776 and indicate final year it shows up as rental income fully taxable. If i enter it on Schedule 3 only I am concerned that i have not "close" off the rental properly. If I enter it in both locations it appears I am getting taxed for 150% of income. 

What is the proper way to complete the disposition of a rental property? 

[reshaque]

Thanks for your question. You should complete the Rental Property schedule indicating this to be the final year of business with the date of sale. If you had set up or taken any CCA (depreciation) in a prior year you will also need to clear those balances.

Unless you are eligible to declare this property as your qualifying Principal Residence there will be Capital Gains/Losses to calculate. 

The details of your rental property sale are entered in TurboTax under the "Investments Profile". You can get there in the EasyStep view by:

• Go to Income & Expenses > Investments Profile > check the top box "Capital Gains or Losses"
• Continue to the Capital Gains Profile page, check the top box "Sold stocks, bonds, real estate or other capital property", continue
• Check box "Sold real estate & depreciable property" and continue to the page where you will be asked for these entries.

If you need further information please contact us or if you prefer you can reach us on social media through Facebook.

[macnec]

Thank you so Ido not record the disposition of the property (building/land) on the T776 and on the Schedule 3 I only record my % portion of the property for Total Proceeds, Total Adjust Cost Base and Total Outlays and Expense since it is a co-ownership, correct? 

[Tara27]

Thank you for providing a response on the procedure to enter a sale of a rental property.   Unfortunately there is no wizard or procedure written by Turbotax Canada and several of us in the community forum are struggling.    I will follow your procedure for Schedule 3 for entering in the disposition of the property (building and land) but I am unclear as to HOW TO CLEAR my CCA balances in the Rental Property T776 location

I tried with the help desk for 2 hrs and they did not know anything about the process in Turbotax canada 2021 on disposing rental properties so I am asking for a Hail Mary that I get a response...  Thank you SOOOOO much for your time.   

[Rsdm2022]

Hi, I have simliar issue.
I will do this split (50/50 co-owners) of proceeds, ACB, and outlays in expenses in our returns using turbo tax premier, which I believe works fine.

However, when it comes to the part for CCA recapture, Turbo tax is incorrectly calculating our CCA recapture.

Do you have CCA recapture and do you find it is calculating correctly in your return?   I am just wondering if turbotax has a bug or is it me making wrong entries somewhere.

I posted question here in the discussion forum but got no answer (yet).

[Tara27]

Good Morning Rsdm2022,

Trust me all of this is so confusing and Turbotax support has no training on this matter and offered only to talk to a tax accountant which I did but they do not know where to enter all the data into Turbotax.  Please note that I am not a tax accountant so what I did below is not verified and you should review with a professional but this is my understanding of what CRA is requiring.

Here is what I did-

1) In the left window pane- INCOME--> Investments-->Capital Gains and Capital Gains Deduction- I checked first box- "Sold stocks, bonds, real estate, other capital property, or sold qualified small business corporation shares and/or qualified farm property and you have a capital gain or loss to report" - THIS GETS YOU TO SCHEDULE 3 where you put in the SALE OF THE HOME -  I then entered TYPE Of CAPITAL - REAL ESTATE, for split- I did 50% with my spouse as he is 50/50 partner on the T776 rental associated with the sale.    Under CORPORATION Name- I put the address of the rental because TURBOTAX does NOT have any where else to enter this.      Then I entered the SALE price of the HOME, The Purchase price in 2008 (Land and Building) that I bought the home in ACB and finally entered the sum of the REALTOR and Lawyer Fees in Outlays and Expenses.

2) NEXT, I went to INCOME--> RENTAL Properties and went to the PROPERTY I sold-  - on First WINDOW- ENTER This is LAST YEAR OF BUSINESS- YES, Then  I entered in all my rent, prorated House insurance, property taxes and costs up to date of sale.   I also clicked the check box Additions and Dispositions of buildings-  here is where you do the RECAPTURE CCA Cost if you depreciated the property-  It will bring you to the CCA section and you will see two buttons- ADDITIONS and DISPOSITIONS.   In your CCA table you should have a Unclaimed Cost Allowance Balance for the Beginning of the year for CLASS 1 ( The building cost that you originally broke out from the total purchase price (Building and LAND) at time of purchase) - $$$ each year you took the 4% Depreciation +any $$$ improvements to the Building that associate to Class 1.       YOU may also have CLASS 6 - Fence/Deck CCA balance and Class 8- Appliances/ curtains etc CCA balance (For these- click TERMINAL LOSS button to clear them out).   Now we need to know the original CCA you assigned at time of purchase for the class 1 building- this is the value you will enter as the DISPOSITION $ for class 1 to recapture the CCA depreciation and clear out Class 1 in the CCA for the property.    you dont need to do anything for land but if you want to, you can do CLICK- UCC from PRIOR YEAR to enter the original Amount you associated with the LAND (Class 90) at time of purchase and then do a disposition of the LAND Class 90 for the same amount to show you cleared the CCA.    

For Example-  My rental was purchased for $320k back in 2008, I broke out the BUILDING and Land as Building $170k Class1 and $150k Land Class 90.     I sold my property for $412,600 in 2021.   In Schedule 3-  I simply entered the $412,600 for sale price, the $320k in ACB and then my realtor fees and legal in the expenses- turbotax splits the sale proceed difference between myself and spouse 50/50 and then does a 50% capital gain calculation to add to our income

The CCA recapture is done in the T776 of the property where my disposition of the Building and Land done above adds up to my original $320k ($170k for Class 1 Building and $150k for Class 90 Land) and you will see on the CCA Table after the dispositions have been saved, the balances in these class go to $0 (Eg. Cleared out) but Say you took $30k in depreciation over a few years in your rental in Class 1- Turbotax recaptures the $170k disposition fee - the UCC balance of $140k in Class 1 and adds $30k of income to your T776.

Hope that makes sense.

Tara

[Rsdm2022]

Hi Tara,

Thank you for the detailed explanation.

Based on your statement "Now we need to know the original CCA you assigned at time of purchase for the class 1 building- this is the value you will enter as the DISPOSITION $ for class 1 to recapture the CCA depreciation and clear out Class 1 in the CCA for the property", I have now a strong sense that I am in the right direction.

I thought in the begiining that the DISPOSITION $ refers to the property sale price.  So when I enter the sale price in the Proceeds of dispostion in T776, my recapture CCA is way too high and does not match what I have claimed in the prior years.

Example (numbers are just random examples):

2008 Condo property purchase price: 337,000
Original CCA: 337,000
Over several years I claimed (aka used) CCAs which totaled to 39,000.
In short, my UCC at start of year (for 2021) is 298,000
2021: Sold condo at 538,000

So in T776, my entries (in the beginning) were like:
UCC at start of year 2021: 298,000
Proceeds of disposition : 538,000 (sale price)
CCA recapture: 240,000 (whoa!!!), this is definitely not correct as I only claimed a total of 39,000 for CCA in the past several years.

From my understanding of what you have explained and from my other readings, I believe this is how it should be:

UCC at start of year 2021: 298,000
Proceeds of disposition : 337,000 (enter the original CCA you assigned at time of purchase, a.k.a. the original capital cost. In the Area E - Column 3, it also provides a clue: the amount of proceeds of dispostion "should not be more than the capital cost".  So defnitely I should not enter the sale price of 538,000).

And therefore the CCA recapture is: 39,000 (Bulls eye !!!). And this CLEAR out (zero out) my CCA balance at the end of the year 2021.

And from my estimation when I completed my tax just now, my owing tax is just about the reasonable range.

Thanks again for your input.  Cheers!

[Tara27]

YAY!!!  Im so happy to help.   Trust me it took two days of research, 3 hrs on phone to Turbotax (zero help) and a $200 consult fee with a tax consultant to get my head straight.   Hopefully CRA thinks we did it correctly too 😛

I know, it is crazy how expensive our taxes are too.   Painful really.   Yay to being a landlord, passive income my butt.

[Lauren liu8662]

how to do CCA recapture

[TurboTaxSusan]

@Lauren liu8662 When you enter your asset disposition, if there is a recapture, then TurboTax will automatically calculate it.