BJK Financial Group Blog

When the federal government recently announced their changes to the capital gains tax a lot of stories popped up about how it would affect ownership of the family cottage. Because, almost by definition, it is not your primary place of residence, that family cottage you have owned forever will be subject to capital gains tax someday.

If you choose to sell your parents’ cottage while settling the estate, then figuring out capital gains is fairly straight forward – sale price minus cost. And cost is calculated as purchase price plus money spent on capital improvements. Any documentation you can provide for each of these items will help immensely.

All of that is also true if you keep the cottage in the family while settling the estate. You will need to get an assessment of the cottage’s fair market value (FMV) either through a real estate agent familiar with the marker or a licenced and certified appraiser.

And other time you sell your cottage you will need to work out the capital gains the same way you would if selling it for estate purposes.

But then, each case is different, so you need to talk to your tax advisor to know how best to proceed.

Going to the cottage – Do I or don’t I want to own a summer getaway

Along with all of the discussion about capital gains, there has been plenty of general discussion over the last couple of years about owning a cottage. The idea of working remotely that became so common during COVID triggered an active interest in cottage properties. And increasing mortgage rates had their own impact on the market as well.

Then this spring, the rise in the capital gain tax rate triggered a whole new series of conversations about selling and buying your cottage property. As long as you couln’t claim it as your primary residence, it was going to be considered for capital gains.

One more reason to look for good professional advice.

But maybe ownership isn’t the only way

It seems like most conversations about cottage life assume that you own that cozy log cabin by the lake. But it doesn’t have to. If you can only get away for a couple of weeks a year, then it may be much more sensible to rent.

Ownership takes time and money. Can you afford to buy your dream cabin and maintain it? Maintenance will require both time and money. Keep that in mind. You are taking on the responsibility of a second home. Along with the chance to have a place to get away from it all is the need to maintain that place too.

Another option could be joint ownership. Be careful of that and make sure you fully work out how to handle whatever chaos might come your way. And make sure you truly trust anyone else you are doing this with.

And we haven’t even talked about renting out your cottage in order to earning a bit of extra income…

There are lots of options. Pop open a cold one and take a moment before you just jump right in.

Summer is here. Let’s enjoy it no matter what

I hope I have given some useful things to think about as cottage season kicks into full gear. As part of your wider financial outlook, having a cottage as a second property has benefits as well as challenges. Feel free to reach out to discuss this or anything else in your financial plan. I would love to help. As usual, you can call me at (519) 279-0186 or send me a note at [email protected]

And above all else, have a happy summer.