A couple owns two properties: their principal residence worth $600,000 and a cottage worth $400,000. Both have appreciated $200,000 since purchase. They can only designate one as principal residence. What is their optimal tax strategy?
Correct Answer
B) Designate the cottage to minimize total tax
Since both properties have the same capital gain ($200,000), designating the cottage as principal residence minimizes tax because it eliminates tax on the smaller property's gain, while the larger property's gain (taxed at 50%) results in the same absolute tax regardless of which is designated.
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A couple has owned their principal residence for 20 years. For 8 of those years, they rented out 40% of the home. When they sell, how does this affect their principal residence exemption?
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A couple owns two properties: their principal residence worth $600,000 and a cottage worth $400,000. If they sell both properties in the same year, what is the most tax-efficient approach?