Alex is the sole owner of an unincorporated business. Alex resides in the Gay Village of Montreal, where she purchased her primary residence in 2009 for $400,000, allocated 75% house, 25% land.

Alex wants to move to Old Montreal by purchasing a new primary residence, a condo for $700,000. She then plans to leave Quebec by selling everything at the end of 2023. Alex is considering the following two options.

OPTION 1

OPTION 2

January 1 2021

move to

Old Montreal

Sell Village home ($600,000 fair value house; $200,000 fair value land). Use sales proceeds to buy Old Montreal condo.

Invest remaining $100,000 directly in public Canadian stocks. The stocks do not issue dividends, but will appreciate in market value by 10% each year.

Convert the Village home to a non-residential office for her business. Currently, Alex pays $18,000 each January 1^st to lease an office, which she would end with this conversion.

Purchase Old Montreal condo with a 4% interest rate loan. Alex will pay interest each December 31, but will make NO principal payments.

December 31

2023

sell everything

Sell Old Montreal condo ($750,000 fair value).

Sell public stock investment.

Sell Village office ($700,000 value of building; $250,000 land value).

Repay loan amount and sell condo.

Showing all of your work, determine which Option has the best after-tax, discounted cash flow. Use optimal primary residence rules, maximum deductions, and no special elections. Alex has a 33% marginal federal tax rate, 26% marginal Quebec tax rate, and 7% discount rate.