Converting a Rental to Your Home
Moving into your rental: the deemed sale, recapture, the 45(3) election and its deadline, and partial moves.
The short version
- Moving into a property you've been renting out is a change in use: CRA treats it as sold and bought back at fair market value on the day you move in.
- That deemed sale can create a taxable capital gain for the rental years, and recapture of any capital cost allowance (CCA) you claimed, with no cash from a sale to pay it.
- If you never claimed CCA on the property (after 1984), you can elect under subsection 45(3) to defer the gain until you actually sell, and designate up to four of the rental years before you moved in as principal residence years.
- The 45(3) election is due by your filing deadline for the year you eventually sell the property, or 90 days after CRA asks for it, whichever is later.
- If you claimed CCA, the election isn't available. Plan the move-in year with that in mind.
Converting a Rental to Your Home
Moving into your own rental feels like coming home. To CRA, it's a sale. You sold the rental to yourself, at market value, on moving day, and the gain on the rental years is taxable that year, even though no buyer and no money showed up. The good news: if you planned ahead and never claimed CCA, one letter can push that tax off until you really sell, and may wipe some of it out.
What the Deemed Sale Means
| Example: rental bought 2018 for $400,000, you move in 2026 when it's worth $600,000 | No election | 45(3) election (no CCA ever claimed) |
|---|---|---|
| Deemed sale in 2026 | Yes, at $600,000 | No |
| Capital gain in 2026 | $200,000 (half taxable: $100,000 added to income) | None now |
| Recapture of CCA | If CCA was claimed: fully taxable | Not applicable (no CCA allowed) |
| Principal residence years | From 2026 onward | From 2026, plus up to 4 years before (2022 to 2025) if no other property was designated |
| When tax is paid | On your 2026 return | Only when you actually sell, on the part not covered by the exemption |
In the election column, if you later sell after living there, say in 2034 (17 years owned, 2018 to 2034), you could designate 2022 to 2034 (13 years) and get (1 + 13) / 17 of the total gain tax-free. The rest is a capital gain then. For the formula, see the principal residence exemption.
Moving into your rental?
Enter what you paid, any CCA claimed, the value on move-in day and your plans. The SmartFile works out the tax with and without the 45(3) election and drafts the election letter.
How to Make the 45(3) Election
- Check eligibility: no CCA claimed on the property for any year after 1984 (by you or your spouse).
- Write and sign a letter stating that you elect under subsection 45(3) of the Income Tax Act for the property, with its address and the date you began to live in it.
- Deadline: file it with your return for the year you actually sell the property, or within 90 days of CRA asking, whichever is later. Many people file it in the move-in year anyway, so it isn't forgotten.
- Keep evidence of the market value on move-in day, in case you need it later.
If You Claimed CCA
Then the election isn't available, and the deemed sale happens in the move-in year: a capital gain on the increase in value, plus recapture of the CCA you claimed, which is fully taxable. This is one reason we suggest thinking hard before claiming CCA on a property you might live in someday. See CCA on rental property. Options to soften it:
- Time the move-in for a year when your other income is low.
- Get a reasonable appraisal; an inflated value creates a bigger gain now, though it also raises the cost for later.
- Set aside the tax: there's no sale proceeds to pay it from.
Partial Moves
Moving into one unit of a duplex or triplex you rent out is a partial change in use: the part you move into is treated as sold, the rest stays a rental. The 45(3) election generally isn't available for a partial change. The general rules, including business use of part of a home, are on change of use rules.
After You Move In
- Stop reporting rent from the date the tenancy ends; your final form T776 covers the part of the year it was rented.
- Mortgage interest stops being deductible once it's your home.
- If you later sell, report it on Schedule 3 with form T2091(IND); see how to report a principal residence sale.
- The reverse move, renting out a home you lived in, is on converting your home to a rental.
Return Check flags a move-in year with no deemed sale or election on file.
Rental to Home Questions
Do I pay tax when I move into my rental property?
Moving in is a change in use, treated as a sale at fair market value. You may owe tax on the capital gain for the rental years and on any recaptured CCA, unless you can make the subsection 45(3) election.
What is the 45(3) election?
An election that defers the deemed sale when a rental becomes your principal residence. It also allows up to four of the rental years before you moved in to be designated as principal residence years. It is not available if CCA was claimed after 1984.
When is the 45(3) election due?
By the filing due date for the year you actually sell the property, or 90 days after CRA asks for it, whichever is later.
What if I claimed CCA on the rental?
The 45(3) election is not available. The deemed sale happens when you move in, including recapture of the CCA, which is fully taxable.
Is moving into one unit of my duplex a change in use?
Yes, a partial one. The unit you move into is treated as sold at fair market value, and the 45(3) election generally does not apply to a partial change.
Sources: CRA, Income Tax Folio S1-F3-C2, Principal Residence (changes in use and the 45(3) election); Guide T4036 Rental Income. Checked October 2026. The example is illustrative and assumes no other property was designated for the years shown.
Last reviewed October 4, 2026 against CRA and Government of Canada sources. How we check our facts.