How to Avoid Capital Gains Tax When Moving To A Rental Property
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- čas přidán 9. 09. 2024
- Are you worried about Capital Gains Tax when moving into your rental property as well? Some of you may be in transition, staying in your rental properties until you move into your permanent home. And some of you may have decided to move into their rentals for good.
In today's video, I’ll tell you all about the capital gains tax on your rental property and how to avoid it.
If you have any questions or thoughts after watching this video, leave a comment below, and I’ll respond as soon as possible.
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Tax planning is a personalized decision and will depend on your situation, priorities, and risk tolerance. Consult with your own legal and tax advisors to ensure you get advice personalized for you.
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Your video is so clear and informative with great examples and FAQ. Thank you!
Glad it was helpful!
Could you please make a detailed video what to do if I'm just converting my basement to a rental property.
Will keep that in mind for future video production.
I have a question referring to you example of moving into your rental property. If for example you buy a house in Hamilton (like your example) and are renting a condo in Toronto for 3 years. Then you buy a condo in Toronto can keep the rental in Hamilton. You live in the newly bought condo for 5 years lets say (it now being your principle residence). Then you move into your Hamilton rental, when you go to sell your rental how many years do you need to pay capital gains on? and does it matter if you sell or keep and rent your condo?
What about this scenario: Couple separates, husband keeps the house they used to jointly own, they buy condo with intent for her to live there, condo title changes to her name only as result of the separation. She only owns the condo, ex husband owns the house. She lives in condo 6 months only but then moves back into the former house that is still owned by ex, and rents out condo for several years while living in former house. CRA still has on record that they are married, they live together but each own separate properties. Then later she decides to occupy her condo again after 10 years (no longer renting out) when they separate again. Condo worth $100k more at that time. Would she incur capital gain during the tax year that she moves back in? Is 45(3) allowed to give the 4 year exemption and is it still filed only when it is sold? Is it better to occupy the condo for a few years before selling, or does it make a difference for tax purposes?
What if i purchased as a primary but now am renting out and have no plans to move back in?
What if you only rent part of the house? What is the effect for tax?
Really great video Cherry! Will share in my FB group 🙂
Awesome thank you!
Hi Cherry, What excellent content you have! I stumbled on this one given my current circumstances, but have since reviewed several other incredibly valuable videos. Our situation is very close to what you have illustrated. Quick facts:
- purchased home in 2018 while living in another owned property.
- Rented out the home purchased in 2018 until mid 2021 at which point we moved into it.
- No CCA has been claimed.
- No 45(3) has been filed.
- The home has appreciated substantially since purchased.
- Do I urgently need to submit the 45(3) or can i wait until i sell in the future? I am debating 1 of 2 scenarios: 1) sell the home while its currently my primary residence 2) turning it back into a rental property (this time a short term rental). All this to say, i am trying to minimize capitals
Thanks in advance!
Sounds like you have a very specific situation. Best to consult with a professional accountant that knows your situation. As always, our team can also assist you to navigate through these issues. Feel free to reach out to us via our website at RealEstateTaxTips.ca
How do I go about the following scenario?
I bought a condo in 2017 but never rented it out, I just used it as a second home from 2017 to 2020.
I then moved into this condo after selling my primary residence in 2020. I lived in this condo from 2020 to 2022 and then bought another house in which I moved into. At this point, I began renting out my condo.
I am currently trying to sell the condo. How would capital gains be calculated? Would it still be from what I paid for it in 2017, or when I moved out in 2022?
Timely and helpful video!! Are you eligible for the 45(3) election if you only depreciate the portion for appliances (class 8) and did NOT depreciate the condo unit (class 1)? Is there a similar election to defer gains when you convert principal residence property into a rental property? May I suggest you number the videos in the title please? I would hate to miss a video even though I am subscribed and have notification on. Thxs greatly!
I personally avoid depreciating anything to avoid CRA questioning the position.
There is a similar election called 45(2) if you convert PR to rental property.
Thanks for the support.
Can you avoid a recapture of class 4 assets if you only depreciate what you have made in net additions?
Class 4 includes a tramway or trolley bus system, which isn't what we are discussing in this video. If you're referring to Class 1 Building, then it is not possible to have no recapture unless you're not selling for a profit.
Hi Cherry, is this applied to any CCA? I've claim CCA class 8 in last 4 years, can't use the 45(3) "election"?
Hi George, were you able to get the answer for this? I have the same question.
Hi there
I have a primary house and rental condo. I bought my primary house in Nov 2010
And rental one in , Oct 28.
My son decided to move into the rental house from Jan 2024.
Do I have capital gain. Or how can I avoid capital gain tax .
Please inform
Primary house ( p 260 k pv 500k R450 pv 630)
Hi Cherry, thanks a lot for this excellent video!
I had purchased a property in 2022 and it was rental property for 1 year. During this time, I had another principal residence. In 2023, I sold my previous principal residence and moved into my rental property, thereby making it my new principal residence.
Based on your video, I believe I can defer the capital gains declaration in 2023, and I dont really need to file the election 45(3) when the change of use happened. No CCA was claimed. This election needs to be filed when (and if) I actually sell the property, right?
Second question is - infact the value of property has decreased in the last year, as you know the housing market is not great. Does it make sense to report this change in use and associated capital loss in 2023 tax return?
What if you live in a residence and also rent out a room and than you move to another place and rent out the first place 100%
I would recommend you schedule a call with my team to discuss the pros and cons and potential tax implications of this move.
My parents moved out of their principal residence to a retirement home 5 years ago and we rented the property. We did send revenue canada an appraised value form (forgot the form name) at the time when they moved 5 years ago. Im assuming capital gains would need to be paid above the appraised value from 5 years back if we sold the property? What if the property needs some structural repairs and we re-appraise the property at a lower amount vs 5 years ago. Can we claim this is a capital loss to offset any capital gains?
Hi Cherry, great video! My son, my spose and I own a property that was rented from 2018 to 2022. CCA was never claimed. My son moved into this property in January 2022. He just reported to CRA his move. Do my spouse and I need to report to CRA election 45(3) now, or when the property is sold (if we sell it at all)?
Great video. I have a rental property and live in another city on rent. Now I like to sell Mr rental property, how can I save the Capital gain.
If you have lived in the property in the past, there are election available that allow you to potentially shelter a portion of your gain on the sale of the rental property. If you have never lived in the property before or not planning to move back in, then you can watch this CZcams video on how to lower your capital gain tax...
czcams.com/video/T42Q6KBoBTI/video.html
Hi thank you for the very helpful video. I'm wondering if these rules still apply if I lived outside of Canada during the years where I rented out the Canadian property? Thank you.
If you are non-resident of Canada from tax perspective , some of these rules will not apply.
So do you need to do an appraisal at any time? I am moving back to my rental now so should I do an appraisal before that to see how much capital gain it will be?
Possibly need to do an appraisal - really depends on whether you are extending your primary residence exemption or not. In certain circumstances, an appraisal is not required.
great video.
we live in BC, and own a home, and were wondering if instead of selling now, we were to rent it out for the time being, (because of the good 5 year fixed interest rate we have), and then sell it. it is our only primary residence right now. We are moving onto a farm, so we do not need the home for ourselves. Then after our 5 yr term, sell, and buy again a new home to stay in ourselves. So this is only for a short term rental.
Do we need to pay capital gains tax when we sell the home?
Hi Bill, thanks for being here. Unfortunately this isn't the right platform where I would be able to advise you about your personalized situation. For any questions or consultation, please contact our office at 416-548-4228 or email us at admin@cccpa.ca and we will be sure to take care of you. Thanks!
Hi Cherry, thanks for your informative video.
I moved into my rental property and filled the form 45(3). In 2022 is my primary resident. I want to pay off the capital gain tax but do not want to sell the property, as low income in 2022. Do you have any suggestions I can do? Thank you in advance.
It sounds like a very specific tax information. Our team should be able to help you. Feel free to call us at 416-548-4228 or email us at admin@cccpa.ca and our team can walk you through the next step.
I moved in with my boyfriend 8 yrs ago. I've been renting my principal residence since. What happens if I move back into my house or sell? I lived in my house for about 4 yrs prior to moving in with my boyfriend. I have not declared any capital expenses in those 8 yrs.
You have a potential election available for you to extend your primary residence exemption for a couple of years. Your situation is a bit complicated given that you have lived with your boyfriend for 8 years. There are a portion of the capital gain that can be sheltered as primary residence, and then you will have to pay tax on the remaining years.
Best to consult someone who has experience.
Is capital gain calculated at sale or market value of when you move in the rental
Hi Kim, thanks for your comment. It really depends on your situation. In this particular video, you can find out the condition that you can defer the capital gain when you sell the property or if you would have to trigger capital gain tax when you move into the property.
Hi Cherry, I helped my son to buy a house. now, I am holding 1% of his property (as per house dead as I heled him out to get mortgage). He rented out the property and he is living in dorm (he is student). he is claiming all rental income, but my question is do I have to claim any rental income as well?
This goes back to the original intention of ownership and documentation to prove your claimed intention as well. If your intention is to be there just for financing, you might have a case to argue that the rental income has nothing to do with you. Again, this is not accounting and legal advice. Consult with someone who truly know your situation. As always, if you don't have an accountant, our team is happy to help.
Hi Cherry, great video however I have a question. We are planning to move to our rental house in Hamilton this year, which is being rented out since 2015. Just like your example in this video, we are currently renting the house that we are living. We have also claimed CCA on the Hamilton property. My question is and which bothers us is are we going to immediately pay the capital gain tax when we move into the Hamilton property and make it as our principal residence?. If the answer is Yes, are we required to pay capital gain tax again when we sell(for example) the house in 3 years?
If CCA is claimed, no election is availble to defer capital gain. A deemed disposition occurs and yes, capital gain is triggered when you move in. When you sell to third party, it goes back to what you do after you move in, if you also make changes, and rent it out again, then you can still pay taxes on the years you rent out your property.
Thank You ! Cherry. But if capital gain tax is triggered does that mean we have to pay the CGT right away? If the capital gain on our property amounts to say,$100th and the CGT for example is 50% then how can we pay afford to pay $50th right away? or my understanding is incorrect. I’m confused and worried that I might end up selling the property because I have no idea how I am going to pay that amount. Hope you can enlighten me .Thank You.
Hello,
Once you move back into the rental property and it becomes a primary residence, assuming it satisfy all the requirements for 45(3) election, is there a rule about how long you would have to live in the property before selling it to make the election?
45(3) election is only available if you have never claimed CCA against the property in the past. Now, 45(3) is also applicable if you don't have any other primary residence during the 4 years that you are using the election... again, there's no specific definitive time that's specified by the Income Tax Act, it is all based on your particular case fact. Good luck.
Great video! Is there any rationale for getting the appraisal of the property right before moving into rental property since average capital gain is being calculated? Is CRA likely to request a FMV of the property at the time of disposition sometime in the future ?
If you want to claim capital cost allowance on the building when you have a chance of use, an appraisal is preferred to come up with the initial capital cost allowed for depreciation. Hope it helps.
Hi Cherry,
I have purchased a house back in 2016 and moved in and out of it multiple times due to work. every time I moved out of the house I rented it to someone. until I finally moved in on December 2020. I lived there myself until finally sold it in June 2022. Am I subject to Capital gains? if so what are some tips on avoiding this? BTW this was my only property during this time and I did a lot renovation and remodeling work in the property while I was in it.
Keeping receipts for all the work you've done is going to be helpful. It would be difficult to say whether you need to pay capital gain tax or not, without looking into all the timeline and everything. If you don't have a professional accountant working on this yet, you're welcome to connect with our team at admin(@)cccpa.ca or 416-548-4228
Hello Cherry, you are doing great work. I have a question in the opposite side. I am a first time hime buyer i bought a home in a suburb in 2022 october and i have been living here ever since then. This is my primary residence and I do not have another property nor plan to buy one. There has been a change in personal circumstances as my employer wants me to come to office more often and my wife found a job in toronto. We staying here may not be possible anymore so can i rent it out now ? I plan to sell it in 2-3 years time. Will i need to pay capital gains when i sell it? Do i need to move back in before selling it? Please advice
this is a very specific scenario and you might be able to shelter more capital gain assuming certain conditions are met. Feel free to reach out to our office at 416-548-4228 or email us at admin@cccpa.ca and my team would be able to give you some advice.
Hi Cherry.
If you amend/re-file the year(s) you claimed CCA and remove it/pay the adjusted balances.. Would you be eligible to file the election to defer the capital gains when changing use?
Thanks!
CRA could potentially ding you on retroactive tax planning
Hi Cherry, We did claim CCA in our rental property, we are planning to sell our principal residence and (hoping) move to the rental property. Can we pay back (recapture) the CCA prior move in and not paying the capital gain right-a-way? How can we declare the rental property as principal residence afterward?
You can't amend your prior year returns as these would be considered retroactive tax planning. When you move into your property, all you need to do is record the deemed disposition of your property as well as the recapture income. You are also required to record the disposal of your principal residence the year you sell it.
If I owned the rental property with my sister, I am the only person has claimed the rental income for the past many years, now that my income is higher, can I sister claim the 100% rental income instead of me, as she is also an owner of the property? Do you have any references in CRA website. Thank you
Generally the answer would be no in a situation like this. Your sister might also be exposing herself to the risk of not reporting rental income .
Hi Cherry, I closed on a Pre construction Condo in May 2022 and rented it out for a year before moving in. If i had no primary residence prior and decided to sell the condo in a few years time, could i use 45(3) to avoid all capital gains? as i would be able to claim it as my primary for the entirety of my ownership?
As long as you meet the 45(3) criteria...sounds like you can claim primary residence exemption
Hi, Cherry. Very helpful video!
What if we moved into our rental property several years ago and didn't know about the change in use rule? Can we amend our tax returns that year to trigger the capital gains, or are we now forced to use the 45(3) "election" when we sell our residence?
Thank you in advance.
Depending on whether you claimed CCA or not on the property, if you did, then you might have an unreported tax transaction when you moved in. If no CCA is claimed, there's really no rush to pay the tax, just use 45(3).
@@RealEstateTaxTips wow thank you for the speedy reply!
We did not claim CCA. Hypothetically, if there was a rush to pay the tax, is that even an option or are we forced to wait till we sell now?
@@stephenknapp1915 @RealEstateTaxTips Hi All. I am in this exact same situation. Do we know the answer on this one yet? Thanks!!
Hey, for what it's worth, my client had claimed CCA so we went back and amended their tax return in the year of disposal and paying the resulting tax bill. Now the client is able to claim the PRE for each subsequent year.
Good luck!
Hi Cherry, great video! Is my understanding correct? If one buys a vacant legal duplex as their first home, moves into unit 1, and then begins renting the unit 2 a few months later (after touching it up a bit), this would not be considered a change in use, since only unit 1 is the principal residence? Thanks for all you do here.
It is partial change in use as per Income Tax Act but CRA has an administrative policy not to consider that as such
Thanks for this video, I wished I knew this before. I bought pre-constructed condo in 2015 and closed it in 2021, since I am renting in other city, so I rented it out immediately after the closing and claimed the rental property HST return. My plan is to move in next year or two when I am back. In 2021, the price has increased compare to my purchase price (remains flat after 2021), can I still make s45(2) election to claim it as Permanent Residence? At 7:33 in this video, you mentioned just send a letter to CRA, when do I need to send it, do I include the market fair price in the latter? (I called CRA and was told to file T2091 this year). Thank you.
This sounds like a specific tax situation and pls call our office to have a consultation
@@RealEstateTaxTips Thank you so much for taking time to respond my question. Is the increase between my purchase price and the market price on the closing day considered as capital gain when I sell it in the future? Am I late for s45(3) if I like to claim the P.R. back to the closing day or it doesn't matter? Thanks again.
@@davel8218 much easier if you come in for a one on one consultation with our team or speak to your professional accountant directly.
You can always reach out to our office at 416-548-4228 or email us at admin@cccpa.ca
Hi Cherry, thanks for the video :) I have an owner-occupied rental property. I am renting out my unit for a short period this year while I recover from an operation. My understanding is this would be considered a change in use and therefore the house would be considered "sold". When I move back into my house later this year, would I be eligible to defer the capital gains tax for that duration as long as I don't claim CCA - with the 45(3) election? Can you clarify what benefit is offered with the 4 years term in change of use provided that I don't claim CCA? For example, let's say I decide to move in with my parents to look after them, and rent out my place for up to 4 years, what is the tax benefit or implication? Also, are owner-occupied rental properties exempt from capital gains tax in general when they are sold on the market?
Sounds like a very specific situation - and I encourage you to speak to your accountant to understand these elections. If you are not currently working with one, feel free to contact our office and our team is more than happy to assist you - 416-548-4228
Hello Cherry, does cca on newly purchased appliances will disqualify the option of selecting 45(3)?
Great video Cherry. If I live in an investment property and want to move out, can I incorporate and sell the property to the corporation and keep the difference of my original purchase price from a couple years ago to today capital gains tax free?
Hi Conor, if you live in an investment property, are you using your primary residence exemption on a different property? This is some important facts to consider before answering your questions.
Feel free to reach out to our team for a proper consultation.
Hi Cherry,
Great video! If you start renting out your entire principal residence, and qualify for the 4 year capital gains 45(3) election, do you make the election in the same tax year you declare the Change of Use, and disposition at FMV?
CRA would like to see the election form filed when you sell the property. There's no deemed disposal at the time change in use happens as a result of 45(3).
Make sure you consult with a qualified accountant.