Published 18 September 2026 · By Jatin Dua, Broker of Record, RE/MAX Quantum Realty
Changing a property from your home to a rental triggers a deemed sale at fair market value for tax. Gains to that date are usually covered by the principal residence exemption; growth afterwards is taxable when you sell. The 45(2) election can extend principal residence treatment for up to four more years if you meet the conditions.
Keeping your old home as a rental instead of selling it is common when people move up. The tax side is less obvious: the moment the property changes from your home to a rental, the tax rules treat it as if you had sold it.
The deemed disposition
When you change the use of a property from personal to income-producing, the tax rules treat you as having sold it at fair market value and immediately reacquired it. Gains up to that date are usually sheltered by the principal residence exemption, for the years it qualified. From then on, growth is taxable when you actually sell.
The practical consequence: you need a defensible value at the date of change. Get a written opinion of value or an appraisal at the time, not years later.
The 45(2) election
You can elect to have the property treated as continuing to be your principal residence for up to four more years, even though it is rented, provided you meet the conditions, including not claiming depreciation on the building. The election is filed with your return for the year of the change. It can be useful if you expect to sell within a few years, or to move back in.
Do not claim capital cost allowance without advice. Claiming it on the building can undo the election, and it gets recaptured as income when you sell.
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What changes once it’s a rental
- Income and expenses get reported each year on the rental schedule of your return.
- Deductible costs include mortgage interest, property tax, insurance, condo fees, repairs and management.
- Improvements are not expenses. They get added to the cost base and reduce the eventual gain.
- Keep every receipt, and keep the valuation from the change-of-use date with them.
- Insurance changes. Tell your insurer and move to landlord coverage.
- Your mortgage may care. Some lenders require notice when a property becomes a rental.
If you move back in later
Changing back from rental to personal use triggers the same deemed disposition in reverse, with its own election option. Talk to an accountant before the move, not after.
The takeaway
Get a written value at the date of change, consider the 45(2) election with an accountant, avoid claiming depreciation on the building, and switch to landlord insurance.
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Frequently asked questions
Do I pay tax when I turn my home into a rental?
There is a deemed sale at fair market value, but the gain to that date is usually covered by the principal residence exemption. Tax applies to growth after the change, when you sell.
What is the 45(2) election?
An election that can treat the property as your principal residence for up to four more years after it becomes a rental, subject to conditions.
Should I claim depreciation on the building?
Usually not without advice. It can interfere with the election and is recaptured as income on sale.
What should I do the week I rent it out?
Record a supported value at that date, switch to landlord insurance, tell your lender if required, and start tracking income and expenses.
Sources
- Canada Revenue Agency — changes in use — deemed disposition and the 45(2) election
- Canada Revenue Agency — T4036 Rental Income — reporting rental income and expenses
Related reading
- Property Manager vs Self-Managing a Toronto Rental: Costs and Trade-Offs
- Rent-to-Own in Ontario: How It Works, Real Costs and the Risks
- Should You Sell or Rent Out Your Condo in Toronto? (2026 Decision Guide)
About the author — Jatin Dua, Toronto and GTA real estate broker
I am Jatin Dua, Broker of Record and co-founder of RE/MAX Quantum Realty Inc., Brokerage, Unit 101, 799 The Queensway, Etobicoke. I work with buyers and sellers across Toronto and the GTA, with deep local knowledge of the west end. Four-plus years of active GTA transactions and over $100 million in sales volume. Every market figure here comes from TRREB’s published tables and every rule from RECO or Ontario legislation, so you can check all of it without asking me.
Reach me at connect@jatindua.com or 833-330-1925, or book a call.