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Thread: How to designate Principal Residence to Rental?

  1. #1
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    Default How to designate Principal Residence to Rental?

    Hi,

    I need to redesegnate my principal residence to a rental property. I know I need to file a section 45(2) election, but I can't find any information on where or how to file it?

    Has anyone on here done this and can point me in the right direction?

    Thanks.

  2. #2
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    I have done it for the last 2 years, and it really is as simple as it sounds. The government website explains this very clearly.

    All you have to do is write a short letter stating your name, the property address and that you are electing for. Here is the quote from the government website



    http://www.cra-arc.gc.ca/E/pub/tg/t4036/t4036-e.html
    Changing your principal residence to a rental property

    When you change your principal residence to a rental property, you can make an election not to be considered as having started to use your principal residence as a rental property. This means you do not have to report any capital gain when you change its use. If you make this election:

    you have to report the net rental income you earn; and
    you cannot claim capital cost allowance (CCA) on the property.
    While your election is in effect, you can designate the property as your principal residence for up to four years, even if you do not use your property as your principal residence. However, you can only do this if you do not designate any other property as your principal residence for this time.

    You can extend the four-year limit indefinitely if all the following conditions are met:

    you live away from your principal residence because your employer, or your spouse's or common-law partner's employer, wants you to relocate;
    you and your spouse or common-law partner are not related to the employer;
    you return to your original home while you or your spouse or common-law partner are still with the same employer or before the end of the year after the year in which this employment ends, or you die during the term of employment; and
    your original home is at least 40 kilometres (by the shortest public route) farther than your temporary residence from your or your spouse's or common-law partner's new place of employment.
    If you make this election, there is no immediate effect on your tax situation when you move back into your residence. However, if you change the use of the property again and do not make this election again, any gain you have from selling the property may be subject to tax.

    To make this election, you have to file a letter signed by you with your income tax return. The letter should describe the property and state that you are making an election under subsection 45(2) of the Income Tax Act.
    I just wrote a letter with my name, my rental property address and said "I am making an election under subsection 45(2) of the Income Tax Act to retain this property as my principle residence", then I tucked that letter in with my tax return when I mailed it. This keeps me from netfiling and adds about a week to the time before I get my refund, but it is well worth it for the capital gains I will save when we move back.

    2 years in a row they have taken this without any issues
    Originally posted by Vagabond142
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  3. #3
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    Hmmm I never did this and have since sold my house. But due to the economy I sold it for less than it was worth when I converted it to a rental property so I would only be losing the capital loss that I could've declared.

    Good info though.

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