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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