Designating Principal Residence

[rosita]

In 2017 we moved out of our condo and started renting it out.

I am now getting around to filing my 2017 tax return and wish to declare our condo as a principal residence.

I went to the Personal Property section under Capital Gains, entered the date we purchased the property, the date we deemed it disposed because of change of use (i.e. we started renting it out), and chose yes for the line "Designation of Principal Residence".  I left the Proceeds of Disposition amount as zero.  

Ufile is now telling me that I can't Netfile because Proceeds of Disposition shouldn't be zero.  Should I enter an amount under Proceeds of Disposition?  How do i know what amount to enter since the property wasn't actually sold?   We did not do an official appraisal.  Can I use our cities' Property Tax Assessment value

[TheTaxSmith]

Hello rosita. I suspect that the property tax assessment will be lower than the market value. Using that value will increase a capital gain later on and you will overpay taxes. You can easily get an appraisal that will give you a value for 2017 and use that as the Proceeds. Contact an appraisal company or real estate firm.

[rosita]

On 3/4/2021 at 4:38 AM, TheTaxSmith said:

Hello rosita. I suspect that the property tax assessment will be lower than the market value. Using that value will increase a capital gain later on and you will overpay taxes. You can easily get an appraisal that will give you a value for 2017 and use that as the Proceeds. Contact an appraisal company or real estate firm.

We have moved back into our condo 3 years after we moved out.   So does this change the answer to the question? Do i still need to get an appraisal?  It's essentially always been our principal residence so when we finally do sell, what it's value was during the period of time we were renting it out shouldn't matter.  Or am I misunderstanding the Declaration of Principal Residence?  thx

 

[TheTaxSmith]

Hello rosita. Given that updated information yes the response if different. You will need to declare the rental income and expenses for all the years rented. I would suggest you don't take any CCA (depreciation) for those years. Did you own another home during the 3 year rental period? If the condo was the only home you owned you will wait until you actually dispose of it and then claim it as a principal residence and exclude the years it was rented. That will determine any taxable gain.

[rosita]

On 3/6/2021 at 8:11 AM, TheTaxSmith said:

Hello rosita. Given that updated information yes the response if different. You will need to declare the rental income and expenses for all the years rented. I would suggest you don't take any CCA (depreciation) for those years. Did you own another home during the 3 year rental period? If the condo was the only home you owned you will wait until you actually dispose of it and then claim it as a principal residence and exclude the years it was rented. That will determine any taxable gain.

Yes, we own/owned only the one condo and no other properties.  I have reported the rental income and expenses (not claiming CCA), for all the years rented except for 2017 (2017 was the year the change of use occurred from residence to rental property and I have not yet filed taxes for this year although i've filed for 2018 & 2019). 

Canada.ca website says 

"When you change your principal residence to an income producing property, such as 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:   1)you have to report the net rental or business income you earn 2)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 4 years, even if you do not use your property as your principal residence.

I was uncertain as to how to file the election, and because of that mental stumbling block, I just never got around to filing my 2017 taxes.  (Note:  I did make a payment so I shouldn't end up owing anything).  Now that we have moved back in, i want to file the 2017 taxes and get everything around the property cleaned up.

So, I just want to clarify before I go ahead and file the 2017 taxes... Even though there was a change of use of the property in 2017, and I never filed the election, because we have moved back into the property, I can file the 2017 tax return now without bothering with the election?

If i don't file the election, will we pay a capital gain (proportional) for the 3 years that we were renting the property?  Can I file the election now with my 2017 taxes so that when we do eventually sell the property, we pay zero capital gain?

 

thanks again for the assistance.