An investor sells a rental property in Alberta for a profit. What federal tax obligation arises from this sale?
Correct Answer
C) They must report a capital gain, partly taxable as income, and may face Capital Cost Allowance recapture
When selling a rental property in Alberta, the investor must report the capital gain (sale price minus adjusted cost base). A portion of the capital gain is included in taxable income. Additionally, if the investor claimed Capital Cost Allowance (CCA/depreciation) on the property, there may be a recapture of that depreciation, which is fully taxable as income.
Why This Is the Correct Answer
When selling a rental property at a profit, the investor must report the capital gain (sale price minus adjusted cost base and selling expenses). A portion of the gain is included in taxable income. If the investor previously claimed CCA (depreciation) on the property, any recaptured CCA — the amount by which the sale price exceeds the undepreciated capital cost — is fully taxable as income, not at the capital gains rate.
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