Can I defer taxes if I’m buying another property?
Think buying another property lets you skip taxes? Read this — where it works and where it doesn’t.
Can I defer taxes if I’m buying another property?
Short answer: sometimes — but only in very specific situations. Know your country, your property type, and your timeline. Don’t assume a sale + purchase automatically kills the tax bill.
Quick breakdown
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United States: Yes, you can often defer capital gains using a 1031 like-kind exchange — for investment property only. You must follow strict rules: a qualified intermediary, a 45-day identification window, and a 180-day closing window. No primary residences.
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Canada: No broad equivalent to the U.S. 1031. Selling an investment property generally triggers a capital gain (50% inclusion rate). You can avoid tax if the property qualifies as your principal residence for the period you owned it. Limited rollover rules exist only for certain corporate or family transfers.
Practical strategies that work
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Know the asset type. If it’s your primary home, learn the principal residence exemption (Canada) or exclusion rules (U.S.). If it’s an investment property, plan for capital gains tax unless you use a sanctioned deferral tool.
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U.S. investors: use a 1031 like-kind exchange. Action steps: hire a qualified intermediary before the sale, identify replacement properties within 45 days, close within 180 days, and make sure proceeds never touch your hands.
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Canadian investors: you can’t defer simply by buying another property. Consider alternatives: refinance to pull equity out tax-free (creates debt, not a taxable event), time the sale in a lower-income year, use available losses to offset gains, or structure a corporate reorganization — only with professional advice.
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Cross-border complexity: If you sold in one country and bought in another, taxes and reporting get complex. You may have foreign filing obligations and withholding. Get cross-border tax counsel.
Simple checklist before you act
- Identify whether the property is investment or principal residence.
- Confirm your country’s deferral tools (1031 for US; no general deferral in Canada).
- Talk to a tax lawyer or accountant before signing anything.
- If using a 1031, hire a qualified intermediary now — not later.
- Consider refinancing if your goal is cash extraction without a sale.
Final clarity
Buying another property does not automatically defer taxes. In the U.S., 1031 exchanges can defer gains when done right. In Canada, you usually pay on sale unless the principal residence exemption or narrow rollover rules apply. The cost of guessing is high. Get tax advice and a local real estate expert.
Need local guidance or a trusted tax referral? Tony Sousa knows Toronto’s market, can coordinate contacts, and will help you structure the move so it doesn’t surprise your wallet. Reach out: tony@sousasells.ca | 416-477-2620 | https://www.sousasells.ca
