My question is: Canadian-specific QUESTION: My father passed away about a year ago, his house was left to myself and my brothers. I am buying out the others and will be fixing up the house to rent it out eventually. I presently own the house i live in but consider down the road i will sell my house and move into my fathers, i am wondering how the rental period will effect things if i eventually sell that house given that i live in it for a year or more and assuming that it increases in value.I also wonder if there is anything else i should be aware of in the purchasing of my fathers house my share of the estate is ten percent.thanks for any advice in this matter. --------------------------------------------------------------------------- david ingram replies: I could spend a day answering this and not cover everything. However, if you move into your father's house after renting it out, there is a deemed disposition of the rental property and you owe capital gains tax on the next tax return you file. You CAN make an election to defer the tax under section 45(3) of the act. Make sure you keep track of every cent you put into the house as it adds to the ACB (adjusted cost base) and means that you will pay less capital gains tax in the future. Living in the rental house makes any increase in value the year you move in tax free, but all the rest is taxable. This older Q & A might/should help. ------------------------------------------------ taxman at centa.com: Please see bottom of message if you wish to unsubscribe. ------------------------------------------ My_question_is: Canadian-specific Subject: Principle Residence Question Expert: taxman at centa.com Date: Wednesday August 09, 2006 Time: 10:31 PM -0700 QUESTION: Hi. My mom has lived and owned her home for over 30 years. I believe this is her principle residence and she would not have to pay taxes on this home if it were sold. She also owns a duplex (2 suites) which she gets rental income. She was wondering what the income tax implication would be for her to sell her current principle residence (above) and move into one of the suites in the duplex. If she sells her current principle residence and moves into her duplex...does the duplex now become her principle residence? If so, when she sells the duplex (to say, be admitted to a nursing home), will there be any tax implications on the sale of her duplex. Any help you could provide us would be most helpful. Thank you. ============================================== david ingram replies: When she sells the house, it is tax free. When she converts the rental duplex to a principal or personal residence there is a deemed sale under the income tax act and she owes the same tax as if she sold it to a stranger. The profit and tax is calculated on the fair market value the day she moves in. 50% of the profit will go on line 127 of her T1-General. She also has to take any depreciation (Capital Cost Alowance) she has claimed over the years and report it as income on Schedule T776 and then line 126. The good news is that if she chooses to delay paying the tax on any capital gain, she can put the line 127 figure on to line 256 as a deduction by making an election to defer paying the tax until the actual sale under section 45(3) of the income tax Act. The bad news is that she can NOT defer repaying the tax on any depreciation claimed. 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