What is a principal residence 13

However, a more common scenario where two or more personal use properties are owned, involves a sale of only one property in a particular year. For example, consider another scenario where a retiree couple have sold their house to move into their cottage and intend to claim the principal residence exemption now on the sale of the house. As noted previously, while it may be possible to claim the principal residence exemption on the cottage when it is eventually sold/ disposed, this claim will be significantly restricted by any claim made on the house when it is sold now, since the principal residence exemption is available on only one property for each year of ownership for each family unit (after 1981). As such, where the cottage and house have both been owned for many years simultaneously, it will not be possible to fully shelter the capital gain on both the house and cottage on an eventual sale (or at death). In addition, if the cottage is not sold now, this formula will not provide the result that it is only the future gain on the cottage that will be sheltered by the principal residence exemption on a future disposition, or that the growth thus far on the cottage is fully exposed to taxation. Rather, it is a proration over the entire period of ownership of the property. In these cases, while the average capital gain per year of ownership can assist in determining the optimal claim - since the sale of one property forces a decision on whether or not to claim the principal residence exemption now - some foresight into the potential future appreciation (or depreciation) of the property retained will be necessary. In particular, it will be necessary to consider the trade-off between saving tax now by fully claiming the exemption on the property sold - while exposing the property retained to future taxation - versus the decision to forego a principal residence claim now, resulting in current tax to potentially save (higher) taxes in the future, in light of the expected timelines and amounts involved.
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