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Disposition of building with Mortgage Take Back

Client sold his commercial building for $3,000,000. He received $600,000 on closing and took back a mortgage of $2,400,000 to be payable in equal monthly payments over 60 months. How do I report this on the T2 return? Any help is greatly appreciated.

You say you have POD of $3,000,000 so that is your POD.

What your CCA recapture is and Capital Gains is cannot be determined, since you have not given Capital Cost/ACB figures.

However, note that you will need to be careful in your carry-forward to self notes to carefully monitor that the software is doing as desired when entering and applying your reserves on Schedule 13.
(Especially if the corporation already has Capital and/or non-capital loss carry-forwards on file).

The ACB is $550,000 and there is UCC of $400,000
.

If ACB is 550,000, UCC is $400,000 and proceed of selling the commercial building is $3,000,000. The gain of sale commercial building is $$2,2450,000 and recapture of CCA is $150,000. You can enter sale of buidling in S3 part 2-real estate for capital gain and enter disposal of property in S8 for recapture of CCA.

Sorry it should S6 part 2-real estate for capital gain.

I am not sure exactly what your question is?

You are unfamiliar with Sections 38, 40 (etc) of the ITA?

You will have to determine proper breakdown in selling proceeds of Depreciable Assets, Non-Depreciable Assets etc before anything can be calculated, let alone reported on the T2…
An examination of the accounts, the history, and the sales contracts and correspondence may also be helpful

Capital Dispositions situations with reserves frequently get audited by CRA - you might also wish to brush up on the above noted sections of the ITA before submitting…

Also, separate but related, you might find that the interest income (from the mortgage) gives a higher tax bill in the corp than one might first have guessed… :frowning:

S3 for personal tax, S6 for corporate

I think that you’re looking for help with the capital gains reserve. See Form T2017 for the calculation. The capital gain is reported on S6. The capital gains reserve is reported and tracked on S13 and deducted on S6.

The reserve claimed in 2019 is added back to the 2020 S6 and the new reserve for 2020 is then claimed on S6 and reported and tracked on S13.

Note re S3: the capital gain on the land and the capital gain on the building are reported separately.

The others were correct when they mentioned CCA recapture or terminal loss.

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Envoyé le: Sa, 9 Mai 2020 12:41 pm
Sujet: [protaxcommunity.com] Disposition of building with Mortgage Take Back

| sandra.tone
May 9 |

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Client sold his commercial building for $3,000,000. He received $600,000 on closing and took back a mortgage of $2,400,000 to be payable in equal monthly payments over 60 months. How do I report this on the T2 return? Any help is greatly appreciated.

Thank you everyone who responded. I know what I have to do now.

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