# Capital gains questions



## faline (Feb 10, 2011)

Hi everyone,

2 questions I am having a really hard time finding answers to:

1) I own a house that I lived in for 2 years, but have rented out for the past 8 months. Does anyone know the terms regarding having to pay capital gains tax? If I sell within a year, can I avoid this tax? I don't own another property.

2) If I decide to keep the unit and rent it for another year or two, do I pay capital gains tax from when I moved out to when I sell? Or from when I purchased to when I sell? 

If anyone knows the answers and/or knows where I can find the answers, I would really appreciate it.

Thanks!


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## OhGreatGuru (May 24, 2009)

Read Chapter 6 of CRA T4037 - Capital Gains. It's all explained in there.

The capital gains Exemption is proportional to the number of years it was a principal residence to the total number of years owned. But there is an extra year of leeway, because the formula is 
% exempted = (No. of years as principal residence + 1)/Total No. of years owned.

There is another option. If you do not have another principal residence, and have changed your principal residence to a rental property, you may continue to claim it as your principal residence for up to 4 years, provide you do not claim any Capital Cost Allowance. See "Changing Use"in Chapt.6.

PS. In case it wasn't clear: The FMV when you changed use is not relevant. The capital gain is calculated on the difference between your net buying and selling prices. The proportion of that gain that is exempt from taxation is based on the rules above.


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## faline (Feb 10, 2011)

Thanks so much...this helps a lot!


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## faline (Feb 10, 2011)

Do you know if Capital Cost allowance includes: mortgage interest, property taxes, and house insurance? 

I'm wondering if I rent out my place but still designate it my princicple residence if I can still claim these costs. I can't find the answer on CRA.


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## kcowan (Jul 1, 2010)

Those costs are netted against the rental income which you must claim.


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