Real Estate

Change primary residence to Rental

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  • Apr 23rd, 2019 10:59 am
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Member
Jul 1, 2008
259 posts
33 upvotes

Change primary residence to Rental

Hi all, I've seen some solid advice on here regarding Rental/Investment properties, so was hoping to get some help with my scenario below. This would be in Ontario.

Bought Property 1 in 2016 as primary residence
Bought Property 2 in 2018 as new primary residence.
Started Renting out Property 1 in 2018

1) I understand when you switch status of property from PR to Investment/rental, it triggers a capital gain, as it's considered you sold and re-acquired. I read some articles that mention there's an option to defer the capital gains for 4 years - anyone know how elect this option and how to indicate it on tax return?
2) If I can defer (option 1) what is the UCC of Property 1 when filling in the tax forms? Is it the new Appraised value at time of transition or the original purchase price?
3) If I can't defer, I assume I have to indicate the capital gains from purchase date to Rental transition date. Then show the "new" property valued at the Appraised value. Is this correct?

Any advice is appreciated.
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Member
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Jan 7, 2019
368 posts
376 upvotes
I'm interested in hearing about this as well. I bought my house a year ago and it is considered lower according to "fair market value". I'm assuming I won't have to pay any taxable gains as there are none...Assuming i change from primary residence to rental (which is something i'm considering)
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Deal Addict
Feb 19, 2019
2347 posts
4020 upvotes
Stouffville ON
magictrickx wrote:
Hi all, I've seen some solid advice on here regarding Rental/Investment properties, so was hoping to get some help with my scenario below. This would be in Ontario.

Bought Property 1 in 2016 as primary residence

Bought Property 2 in 2018 as new primary residence.

Started Renting out Property 1 in 2018

1) I understand when you switch status of property from PR to Investment/rental, it triggers a capital gain, as it's considered you sold and re-acquired. I read some articles that mention there's an option to defer the capital gains for 4 years - anyone know how elect this option and how to indicate it on tax return?

2) If I can defer (option 1) what is the UCC of Property 1 when filling in the tax forms? Is it the new Appraised value at time of transition or the original purchase price?

3) If I can't defer, I assume I have to indicate the capital gains from purchase date to Rental transition date. Then show the "new" property valued at the Appraised value. Is this correct?

Any advice is appreciated.
Changing the status from PR to rental doesn’t trigger capital gain, changing from rental to PR does. You will have deemed disposition of PR which is not taxable.

There is an option to elect the original property to be your principal residence while you are renting it out (up to 4 years), your issue is that you can only elect to have one principal residence at the time, so either your 1st property can be RPR or the second, not both.

If the situation applies to you would be filing election under subsection 45(2) .

If you were able to defer up to 4 years you wouldn’t be able to claim CCA at all, your property will still be your PR, and there will be no change in ACB. If no election is filed or possible you would have a deemed disposition of property one at the assessed value at the time of the status change, and that will be your UCC base for property one. If you elect property one to be your PR than your property 2 will not be exempt from tax when disposed (or status changes from NON PR to PR).

You can read the info here.

https://www.canada.ca/en/revenue-agency ... perty.html
BrokeMillennial wrote:
I'm interested in hearing about this as well. I bought my house a year ago and it is considered lower according to "fair market value". I'm assuming I won't have to pay any taxable gains as there are none...Assuming i change from primary residence to rental (which is something i'm considering)
There will be no tax when changing from primary to rental, but since the MV is lower, your acb for the rental property will also be lower, so when you dispose the rental property in the future the capital gain will be higher (unless you do 4 year election).
Full Time and Full Service Realtor
Member
Jul 1, 2008
259 posts
33 upvotes
senasena wrote: Changing the status from PR to rental doesn’t trigger capital gain, changing from rental to PR does. You will have deemed disposition of PR which is not taxable.

There is an option to elect the original property to be your principal residence while you are renting it out (up to 4 years), your issue is that you can only elect to have one principal residence at the time, so either your 1st property can be RPR or the second, not both.

If the situation applies to you would be filing election under subsection 45(2) .

If you were able to defer up to 4 years you wouldn’t be able to claim CCA at all, your property will still be your PR, and there will be no change in ACB. If no election is filed or possible you would have a deemed disposition of property one at the assessed value at the time of the status change, and that will be your UCC base for property one. If you elect property one to be your PR than your property 2 will not be exempt from tax when disposed (or status changes from NON PR to PR).

You can read the info here.

https://www.canada.ca/en/revenue-agency ... perty.html
Thank you for the detailed response!

If I'm understanding correctly, then the following should happen:
- I can't file any election as I will now have Property 2 as my PR
- There is no capital gains triggered for status change of Property 1 from PR to Rental
- I report Property 1 as deemed disposition of PR on Schedule 3
- Property 1 is now treated as Rental with UCC which is equal to appraised value at time of transition
Deal Addict
Feb 19, 2019
2347 posts
4020 upvotes
Stouffville ON
magictrickx wrote:
Thank you for the detailed response!



If I'm understanding correctly, then the following should happen:

- I can't file any election as I will now have Property 2 as my PR

- There is no capital gains triggered for status change of Property 1 from PR to Rental

- I report Property 1 as deemed disposition of PR on Schedule 3

- Property 1 is now treated as Rental with UCC which is equal to appraised value at time of transition


Yes, except on the tax return you report it on schedule 2091, which than trigger you to answer the question at the bottom of sch 3.
Full Time and Full Service Realtor
Member
Jul 1, 2008
259 posts
33 upvotes
senasena wrote: Yes, except on the tax return you report it on schedule 2091, which than trigger you to answer the question at the bottom of sch 3.
Ok great, will do.

Last question - do I need to breakout the appliances separately as they are separate CCA category? Appraisal value only gives total value of Condo unit, no breakout of equipment.

Thanks again.
Deal Addict
Feb 19, 2019
2347 posts
4020 upvotes
Stouffville ON
magictrickx wrote: Ok great, will do.

Last question - do I need to breakout the appliances separately as they are separate CCA category? Appraisal value only gives total value of Condo unit, no breakout of equipment.

Thanks again.
You don’t have to, but it will probably be beneficial to you if you deduct market value of the appliances from the assessed value of the unit. Unless you have very expensive appliances it won’t make much of a difference.
Full Time and Full Service Realtor
Deal Addict
Jan 1, 2017
1826 posts
1876 upvotes
Get an assessment done by professional of the current market price of your P1 at the time changing from primary to rental property. As when you decide to sell the rental the capital gain will be based on sale price minus market price at time of switch from primary to rental. This will help you in the future.
Member
Jul 1, 2008
259 posts
33 upvotes
senasena wrote: You don’t have to, but it will probably be beneficial to you if you deduct market value of the appliances from the assessed value of the unit. Unless you have very expensive appliances it won’t make much of a difference.
Good to know. Thanks for all the help!
ProductGuy wrote: Get an assessment done by professional of the current market price of your P1 at the time changing from primary to rental property. As when you decide to sell the rental the capital gain will be based on sale price minus market price at time of switch from primary to rental. This will help you in the future.
Yep, I had an appraisal done on P1 at the time of the switch.

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