How long must I live in my former rental property and now my principal residence in order to avoid capital gains tax when I sell it?

[Delphision · Accepted solution]

People may be reluctant to answer this question because the capital gain or loss should already have been handled in the year that you moved back in.  A change of use from revenue property to residential causes a deemed sale at fair market value.  At that time, you would have paid any capital gains.  If you had been taking depreciation on the home, that will cause another problem as that will be added back as income 

CRA does go year by year, so if you lived in the residence on a permanent basis before you started renting it, those years may help to reduce the capital gains in comparison to the number of years that it was a revenue property.

There is not a specific period of time that is required to prove that it is your principal residence,  Some of the rules are here:

http://www.cra-arc.gc.ca/tx/tchncl/ncmtx/fls/s1/f3/s1-f3-c2-eng.html

There is a lot of information here:

http://www.cra-arc.gc.ca/tx/ndvdls/tpcs/ncm-tx/rtrn/cmpltng/rprtng-ncm/lns101-170/127/rsdnc/menu-eng...

Per CRA:

"You can be considered to have sold all or part of your property even though you did not actually sell it. The following are some sample situations:

• You change all or part of your principal residence to a rental or business operation.
• You change your rental or business operation to a principal residence.

Every time you change the use of a property, you are considered to have sold the property at its fair market value and to have immediately reacquired the property for the same amount. You have to report the resulting capital gain or loss (in certain situations) in the year the change of use occurs."