Tax implications on renting out principle residence

[faline]

Hi everyone,

I understand I can designate a home my principle residence for up to 4 years, as long as I do not claim Capital Cost Allowance.

Can I still claim mortgage interest, insurance, property taxes, etc?

Is there anything else I should know regarding tax implications when I sell the home in 3-4 years?

I was going to sell now but then realized the hefty fee to get out of my mortgage!

Thanks,
Faline

[MoneyGal]

No, you can claim the PRE if the home *is your principal residence.* Which means you actually live in it. If you rent out the entire house, it is as a matter of fact not your principal residence and you cannot claim the PRE on the property. CRA will connect your rental income (if declared) and your deductions (if claimed) and disallow the PRE.

[faline]

I did live in it for 2 years, but have been renting it out for about 8 months. I thought I could rent it for a total of 4 years and still consider it my principle residence as long as I don't consider a different property my principle residence and don't claim CCA. Is that incorrect?
If it is correct, I'm still not sure if I can claim mortgage interest, insurance, property taxes, etc during that 4 year period.
Thanks for feedback

[MoneyGal]

From CRA, here: http://www.cra-arc.gc.ca/tx/ndvdls/t...ht/hw-eng.html

A property qualifies as your principal residence for any year if it meets all of the following four conditions:

It is a housing unit, a leasehold interest in a housing unit, or a share of the capital stock of a co-operative housing corporation you acquire only to get the right to inhabit a housing unit owned by that corporation.
You own the property alone or jointly with another person.
You, your current or former spouse or common-law partner, or any of your children lived in it at some time during the year.
You designate the property as your principal residence.

[faline]

I think this applies to my situation though:

Special situations
In certain situations, the rules stated above for changes in use do not apply. The following are some of the more common situations.

Changing all your principal residence to a rental or business property

When you change your principal residence to a rental or business property, you can make an election not to be considered as having started to use your principal residence as a rental or business 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 or business 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.

[MoneyGal]

Whoops. You are right. I had totally forgotten that rule! Disregard my earlier posts, and hopefully someone else will come along and provide the other answers you are looking for.

[Westerly]

Yes you are correct. You report as your quote above, "you have to report the net rental or business income you earn." The net is determined by deducting interest, property tax etc (but not CCA.) I believe the election itself has to be actually filed and has time limits. I also believe you can "late file" an election if need be but you will pay penalties, which add up quickly.

[MoneyGal]

Interest and property taxes are *current* expenses, not capital expenses, so they do not affect a capital gain exemption.

Here's a link to the CRA page on "current expenses and capital expenses" which should be helpful: http://www.cra-arc.gc.ca/tx/bsnss/tp.../crcp-eng.html

[faline]

Thanks!