Hello, I have read some of the posts on subsection 45(2) and I was looking for some suggestions on my situation.
I was only recently made aware of subsection 45(2) despite having my taxes professionally handled and even my home being professionally placed for rent by a realtor. I rented my home out in 2023 in the GTA and have been filing my rental income but not any CCA. My home is worth less than what was paid by a fairly large amount - it was purchased during bidding war time and on top of that I went through a divorce during the bubble and had to purchase the house out at even higher value than what was paid (on a legal separation document) so it is at an even higher capital loss if considered and likely won’t improve for some time. My questions are as follows:
If I were to sell, would the value set upon in the separation agreement be the starting amount I would claim any capital loss/gain?
Should I even file a subsection 45(2) at this point if I plan to sell the home in the next few years and it is at a loss? The penalty would be a few thousand so more money lost
If you LIVED in the home the whole time, then a 45(2) is irrelevant, because of the principal residence exemption (PRE).
However, if you own a home, and move OUT of it, live somewhere else, while still owning that house, then a 45(2) could be useful - it extends the PRE up to 4 years.
If you own more than one property, you can claim the PRE on only one home at a time - whichever one you were LIVING in. Capital gains (or losses) would need to be reported when you sell a property that you were not living in, or if that property changed from personal use to “income producing” - that is, if you were renting it out at any point.
I lived in the home up until just shy of two years ago. I moved cities due to family circumstances but I’m renting so I only own one property. If the value of the home is below original value and likely to sell at a capital loss then was there any point in completing the 45(2)?
No, the 45(2) would probably not benefit you, unless the fair market value (FMV) goes up again in the next 2 years. You should still be able to claim the capital loss that occurred since you moved out. CRA may ask for documents to support the FMV as of 2 years ago, when you moved out, and you will need to include the T2091 form with your taxes in the year that you sell (if you didn’t already include it 2 years ago when it would have been considered a “change in use” for the property).
Further to Nezzer’s comments and just to be clear as of right now you have realized no capital gain or loss. As of the change of use you appear to have a capital loss as the FMV at the time was less than your costs but this is a loss on a principal residence and therefore not deductible. Your cost basis on the now rental property is the FMV as of the change of use and you will claim a gain or loss of the difference between that FMV and the eventual sale price (less costs etc.).
I think this one is difficult to answer because we don’t know the details of your separation agreement but it seems that the amount you PAID or is PAYABLE for the home should be your cost base. I agree there is no point in a 45(2) if it’s a loss. Although @jimt is correct in the proper treatment of the events, I would probably just ignore the entire 2091 if the home is in a loss position when you sell and not bother with the PRE.