A taxpayer owns two properties: their principal residence worth $800,000 and a cottage worth $600,000, both purchased for $400,000 each. If they must sell both properties in the same year, what is the optimal tax strategy?
Correct Answer
A) Designate the cottage as principal residence to maximize exemption
The cottage has a higher capital gain ($200,000 vs $400,000), so designating it as the principal residence would eliminate more taxable capital gain. Only one property per family can be designated as principal residence per year, and the designation should be made to minimize overall tax liability by exempting the property with the larger gain.
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A Toronto resident owns two properties: their principal residence worth $800,000 (purchased for $400,000) and a cottage worth $500,000 (purchased for $300,000). If they sell both properties in the same year, what is their total taxable capital gain?