John owns a cottage that he uses personally for 4 months per year and rents out for 6 months. He wants to sell the property and is considering his tax options. What tax planning strategy should he consider?
Correct Answer
B) He can designate the cottage as his principal residence for the years he owned it to reduce capital gains
John can designate the cottage as his principal residence for some or all of the years he owned it, which would eliminate capital gains tax for those designated years. However, he can only have one principal residence per year, so he would need to choose between this cottage and any other residence for each tax year.
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Previous Question
John and Mary are married and own three properties: their principal residence worth $600,000, a cottage worth $300,000, and a rental property worth $400,000. They sell the cottage for $450,000 after owning it for 6 years. If they designate it as their principal residence for 4 of those 6 years, what portion of the capital gain is exempt from tax?
Next Question
John owns three properties: his principal residence, a cottage, and a rental property. He sells all three in the same year, realizing gains of $100,000, $80,000, and $60,000 respectively. What is his total taxable capital gain?