If a couple each owned a house and got married and then converts one of the principal residences to a rental property, is there a reason not to file the 45(2) Election? Does it not then provide the option down the road to determine which property is better to designate for PRE? Is there a downside to filing election 45(2)?
Or if someone buys a new house and converts the old to a rental. No harm in filing 45(2) Election in this case as well as provides options without harm?
Yes - it provides options. No harm in filing it. But, I’m not sure if it works when you own two houses and live in the one that is not designated as your PR.
Also, for the spouse whose house is now rented, they would have to track the gains on the house they now live in (for up to 4 years, while their rented property remains their designated PR), and pay tax on those gains at some point in the future. Of course, that’s all part of the “options” you’re considering. Just need to ensure the documentation is obtained and kept track of, which is often the biggest problem (i.e. is the client going to remember to get appraisals on both houses in 4 years when the 45(2) expires?).
Right, I’m wondering if I’m over complicating it for little potential benefit. Since both places are in the same market it is unlikely there will be a significant difference in the comparative change in the value over the four years. I was thinking at the very least they could take advantage of the +1 aspect of the PRE calculation and assign 1 year to the rental property. But I’m leaning towards too messy, especially in the event the client and I are no longer working together in four years (for whatever reason) and they don’t understand the situation enough to ensure it gets dealt with properly.
I appreciate your input!
HI Nezzer… need your help on a related situation. Couple each has homes. Female moves in with male and begins to rent her house out. Does she file a change in use AND a 45(2) election? As I understand it, she would need professional valuation. The 45(2) will provide 4 years without tax implications as long as she does not claim CCA.
No, that wouldn’t make sense. The 45(2) election is used to DELAY the tax consequences due to the legal fact that there was a change in use. I suggest you hire an accountant to ensure everything gets reported correctly, and explain it to you in more detail.
ouch… I am an accountant. I just haven’t dealt with this before. But thanks for the input. You ae truly appreciated on this site.
@dawna777
Oh! Sorry. I scrolled to the initial post in this thread to see where it started, and assumed you were the one posting THAT as well…
I understand. We all have a “first time I’m doing this…”
But, then, with my “broad strokes” answer, I’m sure you can figure out the rest!