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Level 1
posted Apr 30, 2021 8:32:49 AM

CCA Calculation for renting the basement suit in my principal residence

Can we claim the CCA if I rent out the basement in principal residence if I can what portion we calculate the CCA on?

Value of the whole House (building without land) = $500,000

Basement Value 35% of the whole house = (500,000*35%) $175,000

Do we calculate the CCA on $175,000 (basement portion or on the whole house $500,000?

If someone could please clarify it would be greatly appreciated!

 

0 1 485
1 Replies
Level 6
May 10, 2021 9:08:13 AM

Thank you for choosing TurboTax, 

As per CRA if you started to use part of your principal residence for rental or business purposes, the CRA usually considers you to have changed the use of that part of your principal residence unless all of the following conditions apply:

  • your rental or business use of the property is relatively small in relation to its use as your principal residence
  • you do not make any structural changes to the property to make it more suitable for rental or business purposes
  • you do not deduct any CCA on the part you are using for rental or business purposes

Generally, if you do not meet all of the above conditions, you will have a deemed disposition of the portion of the property that had the change of use, and immediately after, you will be deemed to have reacquired that portion of the property. The proceeds of disposition and the cost of the reacquisition will be equal to the proportionate share of the FMV of the property, determined at that time. Additionally, in the year the partial change in use occurs, you can make a principal residence designation (for the portion of the property that had the change in use), by completing page 2 of Schedule 3, Capital Gains (or Losses), and page 1 of Form T2091 (IND), Designation of a Property as a Principal Residence by an Individual (Other Than a ....

 

If you want to claim CCA for your rental basement, this means deemed disposition of the portion of the property and you should determine the fair market value of the basement and claim CCA from the fair market value of it. 

If you rent out your principal residence, claiming CCA means that you have to pay capital gains when you sell your home. The depreciation you claim over the years with CCA is added back when you sell your property; this is known as recapture.

Many landlords subsidize their mortgage by renting the basement in their principal residence. When you rent out your family home, you have the option of claiming CCA. If you decide to claim CCA, it leads to tax savings in the short term, but you have to pay capital gains when you sell your home.

 

Please visit our TurboTax article on Claiming Rental Income and Dos and Don’ts: CCA for Rental Property Explained to learn more about CCA on rental property.