Personal Finance

From principal residence to rental, Form T2091 or 45(2) or both should be filed?

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[OP]
Newbie
Jan 24, 2017
45 posts
14 upvotes

From principal residence to rental, Form T2091 or 45(2) or both should be filed?

I bought a NEW principal residence in Oct. 2019; then rented out the OLD principal residence in Apr,2020. Which of the form: T2091 or 45(2) or both should be filed?
One accountant told me that T2091 must be filed; another one told me that T2091 and 45(2) can not be used at same time.

If there is no 45(2) election, T2091 must be filed; if having 45(2) election filed, do I need to file T2091?
Because if 45(2) election is filed, the change of use was deemed NOT to occur; and there was no deemed disposal(see pics)
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17 replies
Deal Addict
Mar 3, 2018
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You can only ever designate one principal residence in any tax year. The 45(2) election won't help you as it is meant for people who have only one property that they started to rent out. You will need to complete the bottom area of schedule 3 and a T2091 in the tax year you changed use for the first property.
[OP]
Newbie
Jan 24, 2017
45 posts
14 upvotes
Due to the plus one rule, I think I can have two principal in 2019. and
I mean if 45(2) is filed, even if there is no 4 year credit added due to another principal, there is more benefits.

1. the capital gain can be deferred until sold later eg.2030; there is no need for a appraisal FMV2020.
2. Use plus 1 to calculate the total year as principal such as (2006-2019)+1=15; It seems get one more year exempted, is it correct? If so, the new house as principal will be exempted from 2019 or 2020? I am confused here.
3. Total year owned from 2006 to 2030 = 25
4. Ratio of capital gain exempted as Principal: 15/25.
5. The capital gain is based on FMV2030-FMV2006, not FMV2030-FMV2020. If the housing price goes up faster later than before, there is more money exempted.
Deal Addict
Mar 3, 2018
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You need to consider that by electing under 45(2) you cannot designate any other property as your principal residence for those four years. You elected the rental property to be your principal residence for those years. That means your new house will be subject to capital gains for the tax years 2020 to 2023 even though you reside there.
[OP]
Newbie
Jan 24, 2017
45 posts
14 upvotes
DaveTheDude wrote: You need to consider that by electing under 45(2) you cannot designate any other property as your principal residence for those four years. You elected the rental property to be your principal residence for those years. That means your new house will be subject to capital gains for the tax years 2020 to 2023 even though you reside there.
Make sense. Thank you.
1. Under 45(2), it is default to add 4 years for principal. Can I elect to ignore these 4 year on old house, instead of using/adding it on new house?
2.Under T2091, can I have one year overlap to designate principal for both houses, such as old house (2006-2019), new house(2019-future). For year 2019, can I use it for both?

Thanks
Deal Addict
Mar 3, 2018
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lhq2100 wrote: Make sense. Thank you.
1. Under 45(2), it is default to add 4 years for principal. Can I elect to ignore these 4 year on old house, instead of using/adding it on new house?
2.Under T2091, can I have one year overlap to designate principal for both houses, such as old house (2006-2019), new house(2019-future). For year 2019, can I use it for both?

Thanks
45(2) allows you to ignore for up to four years a change in use to rental and have that property remain in principal residence status. Your new house has not had a change in use so 45(2) would not apply.

I would designate 2006 - 2018 for the old house. With the plus one year rule in will cover 2019 and there will be no taxable gain on the change of use disposition. For the new house use (2019 - future year) as you may need its plus one year in the future if you change houses. The plus one rule is to allow you to exempt both residences in the year you move.
[OP]
Newbie
Jan 24, 2017
45 posts
14 upvotes
Does the PLUS one rule automatically apply or I have to add it myself when file tax? for my case: Bought old in 2006, rent it out in 2020, bought another NEW in 2019.
T2091 lets me enter the number of tax years ending after the acquisition date for principal. (2006-2018) + 1=14 years. Is it correct?

Somebody said that I can defer the designate disposition until sold in future. so that (2006-2018)+1 for principal; the rest of years for Capital gain.
In this case, does it mean I don't have to file any forms including T2019 and 45(2)?
Deal Addict
Mar 3, 2018
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lhq2100 wrote: Does the PLUS one rule automatically apply or I have to add it myself when file tax? for my case: Bought old in 2006, rent it out in 2020, bought another NEW in 2019.
T2091 lets me enter the number of tax years ending after the acquisition date for principal. (2006-2018) + 1=14 years. Is it correct?

Somebody said that I can defer the designate disposition until sold in future. so that (2006-2018)+1 for principal; the rest of years for Capital gain.
In this case, does it mean I don't have to file any forms including T2019 and 45(2)?
If you run through the calculation on the T2091 you will see the +1 year is included and should make your net capital gain zero. Using (2006-2018) would be 13 tax years plus one year.

Technically you changed use in 2019 so the change in use disposition should have been reported on your 2019 tax return. You were required to file either the T2091 or 45(2) by June 1, 2020 extended from April 30th due to covid.
[OP]
Newbie
Jan 24, 2017
45 posts
14 upvotes
DaveTheDude wrote: If you run through the calculation on the T2091 you will see the +1 year is included and should make your net capital gain zero. Using (2006-2018) would be 13 tax years plus one year.

Technically you changed use in 2019 so the change in use disposition should have been reported on your 2019 tax return. You were required to file either the T2091 or 45(2) by June 1, 2020 extended from April 30th due to covid.
We did not report it on my 2019 Tax return. Because we still lived in our old house until Apr, 2020. The new house was closed at Oct 2019, we did not move in immediately due to bad smell.
Is it good if we say we live in old house 2006-2019, new house 2019-future?
[Accountant told me there is ONCE in life I can buy a new house in the year (eg,2019), and sell it in next year (2020); all other deals(buy/sell) have to be finished in same year. So I think I am ok]

Thanks,
Rob
Deal Addict
Mar 3, 2018
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Is it good if we say we live in old house 2006-2019, new house 2019-future?

Designate (2006-2019) +1 year rule to cover 2020 for the old house. Designate (2020-future) for the new house and use the +1 year to cover 2019.

Your accountant is referring to the +1 year rule that works only once to exempt gains when you buy and sell in different years.
[OP]
Newbie
Jan 24, 2017
45 posts
14 upvotes
DaveTheDude wrote: Is it good if we say we live in old house 2006-2019, new house 2019-future?

Designate (2006-2019) +1 year rule to cover 2020 for the old house. Designate (2020-future) for the new house and use the +1 year to cover 2019.
==>I don't think this works. My understanding the plus one rule means that a person can have two principals exempted if buy new house and sell old house occurs in same year. There is only one extra year for both.
If what you said working, that means there are two overlaped years(2019,2020) exempted.

Your accountant is referring to the +1 year rule that works only once to exempt gains when you buy and sell in different years.
==>Someone told me I can buy one new house, then sell the old next year and get both houses exempted. How to report for this scenario. I think my case is similar to this case.
How about "Don't file T2091 or 45(2) now and leave it until sell in future to file"?
[OP]
Newbie
Jan 24, 2017
45 posts
14 upvotes
Suppose that I bough a new house closed in Dec, 2019, how could I sell the old one in same year? There is no time left by Dec 31. Maybe the one year period should be referred to 365 days calculating from Dec,2019, not the calendar year end Dec 31, 2019.

As you said that it should be filed with 2019 tax return technically. I think it should be ok to file with 2020 tax return too.
I will try to file it with 2020 tax return. The old house (2006-2018) + 1 ; The new house (2019-future). So that year 2019 is exempted by both house.

Many thanks for your clarification.
Member
Jul 1, 2008
234 posts
24 upvotes
I was in the same situation as OP a few years ago - I had an existing primary residence (A), bought a new house (B) to live in, and then rented out A. As a result I designated A as primary residence to defer capital gains tax.

In 2020 I sold Property B, but still holding property A as income property. Do I now pay capital gains on sale of property B?
Deal Addict
Jan 19, 2017
4136 posts
2348 upvotes
magictrickx wrote: I was in the same situation as OP a few years ago - I had an existing primary residence (A), bought a new house (B) to live in, and then rented out A. As a result I designated A as primary residence to defer capital gains tax.

In 2020 I sold Property B, but still holding property A as income property. Do I now pay capital gains on sale of property B?
You can't designate A as primary residence after moving to B because you don't live in A any more. So you are considered have sold A as PR and rebought A back as rental. Look at the condition in the link below to see that:
https://www.canada.ca/en/revenue-agency ... dence.html
Member
Jul 1, 2008
234 posts
24 upvotes
ml88888888 wrote: You can't designate A as primary residence after moving to B because you don't live in A any more. So you are considered have sold A as PR and rebought A back as rental. Look at the condition in the link below to see that:
https://www.canada.ca/en/revenue-agency ... dence.html
Thanks, I did read through this, especially sections 2.48-2.50 where it talks about change in principal residence to income producing. I'm just not clear on capital gains. I've sold A as PR and reacquired it as rental (which I assume excludes it from Capital Gains). Then I purchase B and move there as PR. I've now sold B, and don't have a PR anymore (even though I still have A as income producing). Trying to understand if / where there would be any capital gains in all of this.
Deal Addict
Jan 19, 2017
4136 posts
2348 upvotes
magictrickx wrote: Thanks, I did read through this, especially sections 2.48-2.50 where it talks about change in principal residence to income producing. I'm just not clear on capital gains. I've sold A as PR and reacquired it as rental (which I assume excludes it from Capital Gains). Then I purchase B and move there as PR. I've now sold B, and don't have a PR anymore (even though I still have A as income producing). Trying to understand if / where there would be any capital gains in all of this.
If you move back to A after sold B and designate A as PR, then you are considered to have sold A and required it as PR. You will have capital gain on A. If you buy a C and move into it as PR, then no capital gain yet.
Member
Jul 1, 2008
234 posts
24 upvotes
ml88888888 wrote: If you move back to A after sold B and designate A as PR, then you are considered to have sold A and required it as PR. You will have capital gain on A. If you buy a C and move into it as PR, then no capital gain yet.
The last part is the scenario that applies to me. Thanks for clarifying.

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