What happens when I sell a Primary Residence turned Rental.

[JosephLague]

Hi, I am new to landlord duties and what's expected of me come tax season, however I have done lots of research and feel confident I can handle it all.



I have one question I can't seem to find an answer too.



I have recently moved out of my primary residence into a small apartment and am renting out the house until I move back in in a few years. I will be sending a letter to the CRA with this years tax return based on the below link changing my principal residence to a rental business.



http://www.cra-arc.gc.ca/tx/ndvdls/tpcs/ncm-tx/rtrn/cmpltng/rprtng-ncm/lns101-170/127/rsdnc/chngs/chngngll-eng.html



My only fear is if I sell that I get stuck paying taxes on selling a rental property, even though it is my principal. Is there a way to crystalize the property value at my time of turning it into a rental property? (Dec 2012) And keeping my previous equity gains locked in and untouched if I sell down the road?



Any direction on the matter is greatly appreciated.

-Joe

 

[Sherilynn]

I would pay for a market appraisal from a licensed appraiser. This sets the baseline price at which your personal residence capital gains exemption ends and your gains as a rental property start. When you sell, you will only pay taxes on the gains as a rental property.

 

[moparcanuck]

I think Sherilynn nailed it. Get an appraisal, that becomes your new cost on the rental property.

 

[piggy]

After watching years of bnn.ca "talking tax" shows I have learnt that a comparitive market analysis by a competant realtor is enough. If the realtor results are similar to the tax assessment by the city you can combine that S additional proof. If Cra audits you. They will simply look at comparables as well. There is two ways to assess it And as long as you stick one all along you will be fine. 1st. Assess what it's worth when the change of use occurs(by realtor, etc). This establishes the cost base for either e exempt gains(principal residence) or capital gains or losses-rental. This is done every time you change it's use. Cra deems it to be sold and re acquired at fair market value.
The other way is they look at the total gains during ownership at the time when you actually sell the property . The years as principal residence is accounted for as a percentage of the total years you own the property . This X the total gains is the exemption, the rest is taxed. It's your right as well to rent you principal residence out for I believe 4 years , move back in and all gains are exempt. If you are forced to relocate for worki believe this right is extended indefinitely as long as your still in that Same job