If you sold your home during the year, you might have realized a capital gain or profit. Depending on whether your home was your principal residence for each year you owned it or for only some of the years, you might have to pay tax on the gains from the sale.
Your principal residence is your main home where you and/or your family live. Your house, cottage, condominium, apartment, trailer, mobile home, or houseboat can qualify as a principal residence if it meets all of the following conditions:
- It’s a housing unit, a leasehold interest in a housing unit, or a share of the capital stock of a co-operative housing corporation you bought so that you can live in a housing unit owned by that corporation
- You own the property alone or with another person
- You, your current or former spouse or common-law partner, or any of your children lived in the property at some time during the year and
- You designate the property as your principal residence.
The land on which your home is located can also be part of your principal residence. Refer to the Canada Revenue Agency (CRA) website for more information on the requirements for qualifying land as part of your principal residence.
Note: Only one residence per year can be designated as the principal residence between spouses.
Did you know? Since your home is considered personal-use property, if you had a loss from selling your home, you aren’t allowed to claim the loss.
My home was my principal residence for every year I owned it
If your home was your principal residence for every year you owned it, you don’t have to pay tax on the capital gain from the sale (principal residence exemption).
Prior to 2016, you didn’t have to report the sale of your principal residence on your tax return. However, starting in 2016, you’ll need to report basic information (date of purchase, proceeds from the sale, description of the property, etc.) on your tax return to claim the principal residence exemption.
My home was my principal residence for some of the years I owned it
If your home was your principal residence for only some of years that you owned it, you’ll need to report the part of the capital gain from the sale of the property for the years it wasn’t your principal residence. To do this, you’ll need to download and complete the following forms from the CRA’s website:
- T2091(IND): Designation of a Property as a Principal Residence by an Individual (Other Than a Personal Trust)
- T2091(IND)-WS: Principal Residence Worksheet
Once these forms are completed, enter the relevant information on Schedule 3 in H&R Block’s tax software. You can find Schedule 3 under the PENSION PLANS AND INVESTMENTS icon on the PREPARE tab. The CRA also requires that you submit the paper copy of these forms to your local tax centre.
Note: If you’re the legal representative of a deceased person, complete and file form T1255 to designate their property as a principal residence.
You’ll also use form T2091(IND) to calculate the capital gain if you sold, or are considered to have sold, a property for which you or your spouse filed an election to report a capital gain on form T664 or T664(Seniors) and:
- the property was your principal residence for 1994 or
- you are designating it in 2016 as your principal residence for any tax year
Only part of my home was my principal residence
If only a part of your home qualifies as your principal residence and you used the other part to earn rental or business income, you have to split the selling price and the adjusted cost base between the part you used for your principal residence and the part you used for other purposes. You can split the amounts based on the area used as principal residence (square meters or number of rooms) versus for other purposes, as long as the split is reasonable.
Note: The adjusted cost base is the cost of a property plus any expenses you paid to buy it, such as commissions and legal fees. The cost of a capital property is its actual or deemed cost and capital expenditures, such as the cost of additions and improvements to the property. Keep in mind, you can’t add current expenses, such as maintenance and repair costs, to the cost base of a property.
Changes in use
If you change the use of your principal residence to a rental or business property or vice versa, you might have a capital gain or loss.
Every time you change the use of a property, you’re are considered to have sold the property at its fair market value (FMV) and to have immediately bought the property again for the same amount. FMV is usually the highest value you can get for your property in an open market. You’ll need to report the capital gain or loss in the year the change of use takes place. Of course, there are exceptions and in certain situations the rules for change in use don’t apply. Refer to the CRA website to learn more on what these exceptions are.
For example, let’s say that you bought your principal residence for $200,000. Two years later, you changed its use to a rental property and the fair market value is $300,000 at that time. This becomes the new cost of your property. The gain of $100,000 in the first two years would be tax exempt since the property was your principal residence.
Now, let’s say you sold the rental property three years later for $450,000, you would then have a capital gain of $150,000 and will need to pay tax on this amount as the property was no longer your principal residence. If, instead, you decide to change the use of the rental property to your principal residence again, the fair market value of $450,000 will be the new cost of your property and you’ll still need to report the gain of $150,000.
Where can I claim this?
Follow these steps in H&R Block’s tax software to file your 2016 taxes:
- Under the PREPARE tab, click the LET’S TALK ABOUT 2016 icon.
- Select the checkbox labelled I had investments and/or investment income, or I bought and/or sold property, then click Continue.
- Click the PENSION PLANS AND INVESTMENTS icon. You will find yourself here:
- Under the BOUGHT/SOLD SECURITIES OR OTHER PROPERTY heading, select the checkbox labelled Principal residence designation (T2091(IND)/Schedule 3).
- Scroll to the bottom of the page and click Continue.
- When you arrive at the Principal residence designation page, enter your information into the tax software.
Note: The Principal residence designation (T2091(IND)/Schedule3) page can also be found on the OTHER page of the PREPARE tab under the heading, OTHER TYPES OF INCOME.