Change of principal residence and renting out the old home

[WestCoastCoopersmith]

Good evening.  My wife and I retired in late 2018 and relocated to Victoria from Vancouver.  Our principal residence for 18 years was in West Vancouver.  However, when the housing market fell in 2017, we were unable to sell our West Vancouver home.  We did manage to buy in Victoria, and our Victoria house has been our principal residence since Jan 2018.  We are now renting our West Vancouver home as we wait for the market to return.  What sort of declaration do I have to make to the tax man in order to minimize the tax I need to pay.  We have a mortgage on the West Vancouver property.

[TurboTaxKim]

When you have a change in the use of your "Principal Residence" to an income-producing property, you are considered to have made a "deemed disposition" of that property. As a rule, you do not need to file anything with your tax return until you actually sell the property. 

You should, however, try to document the "deemed disposition" as accurately as possible by determining the Fair Market Value (FMV) of the property at the time the deemed disposition took place. The FMV you determine at the time you change use will be used when you do sell the property, and your Capital Gain will be based on the difference between the FMV and selling price. 

The best way to document the FMV is by having an appraisal done on the home at the time you change the use of it, but you can also use property assessments and real estate comparisons.

Here's some more information on this topic: 

• Canada Revenue Agency:  Changing all your principal residence to a rental or business property
• TurboTax Tip:   Changing Your Principal Residence