Sarah owns two properties: her principal residence worth $600,000 (purchased for $400,000) and a cottage worth $300,000 (purchased for $200,000). If she sells both in the same year, what is her taxable capital gain?
Correct Answer
B) $50,000
The principal residence has a $200,000 gain ($600,000 - $400,000) that is exempt. The cottage has a $100,000 gain ($300,000 - $200,000), and one-half of a capital gain is taxable, so $50,000 is added to her income. Only one property per family unit can be designated as a principal residence for a given year.
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