Should software automatically populate the S3?

Tax Topics
1

For my personal return, I sold a rental property in 2024 that I had purchased in 2019 and had rented out. The proceeds of the sale plus the recaptured CCA less outlays were less that the purchase price plus additions. The software (asset summary) shows a terminal loss. Should it not be a capital loss and therefore show up on the S3? Would the software automatically populate the S3?

2

Rental Property Cost should be split between land and building - split should be agreed upon by vendor and purchaser. Only the Land part can create a capital loss.

Here is a good article by TaxTips.ca.

Sale of Rental Property on the Tax Return

When a rental property is sold, the amount that is the lower of cost or proceeds from the sale of the building is entered in the capital cost allowance schedule on the T776. Any negative difference between this amount and the undepreciated capital cost (UCC) will be brought into income as recapture. This amount will be nil if no capital cost allowance has ever been claimed for the building, and proceeds are greater than cost. If there is a balance remaining in the CCA class after all assets in the class have been sold, there is a terminal loss which can be used as a deduction against business or property income. The proceeds from the sale of the land is entered on line 9924 of the T776. Any capital gain or loss (proceeds less cost) is recorded on Schedule 3. Generally, allowable capital losses can only be used to reduce or eliminate taxable capital gains.

1 Like
3

thank you for taking the time to respond. Although I made assigned separate assets, building and land, for the rental, I was unaware of the different type of loss for each of them. I assumed that both would create a capital loss if sold for less than the total ACB + recapture.

4

You either have recapture of CCA on your building or you have a terminal loss. You can’t have both.

Either the amount allocated to building portion of the sale was less than the 2023 closing UCC balance in presumably class 1 (resulting in a terminal loss) or it sold for more than your closing 2023 closing UCC balance (resulting in recapture).

If you have recaptured CCA on your depreciable asset, but the proceeds were less than the original cost then your “ACB” will now be equal to your Proceeds of Disposition. In other words, your 2023 UCC closing plus any amount of CCA that you recaptured. There will be no further gain or loss on the building portion, as that was taken into account with the CCA you claimed over the years plus the portion you recaptured on the sale.

5

CRA Guide is useful

4 Likes