The above, and the transfers to family, are mainly an overview of some of the more common planning techniques available for triggering capital gains on vacation properties. However, it would never be recommended any of the strategies be undertaken simply for the purpose of perceived income tax savings. The following factors should always be considered before any such transactions are to be taken:
If you use most or all of the capital gains exemption on the transfer of your cottage property, you will be forever unable to use the exemption for any other assets. If there's any possibility that you would want to use the exemption in the near future in some sort of commercial arm's length sale, you might wish to refrain from triggering the exemption prematurely on the transfer of your cottage. The flip side of this argument is, of course, that the exemption could disappear at any future point before you have had a chance to use it for some other property.
Cottage owners often look at these properties as great family monuments which should be passed down from generation to generation. However, before you do anything, you should discuss with your children whether they actually want the cottage. Many children are simply not as interested in the family cottage as their parents are, for any number of reasons. Additionally, they might not have the money to pay property taxes and all the incidental expenses necessary for the upkeep of the property. Finally, as discussed above, the children may disagree as to how the property is managed. The last thing you want is to referee a battle amongst your children about who should fix the roof or who should pay for the new screen on the porch.
What it all boils down to is this; there are many methods, only some of which have been canvassed here, of doing some effective tax minimization strategies with vacation properties. And while each method has its own pros and cons, the plan ultimately chosen is far less important than the willingness of the parties to make it work.