My client owns 2 properties and is living in one property and his ex is in the other. When they sell the property my client is in, is it now his principle residence?

My client and his common law wife separated in March of this year. They own 2 properties together, and upon their separation, my client moved into their cottage. Now they are selling the property, and splitting the proceeds. Does this cottage now have principle residence status for my client? 

Answer

It does, but the tax exemption is probably quite small.  If they bought it 5 years ago, let's say, for $100k, then you have to determine what the value of it was when he moved into it.  Let's say that is $150k.  The principal residence exemption would only apply to the appreciation in value since the time he moved in up to the point of sale.  Not for the entire length of ownership.


Presumably, the proceeds/cost would be split on each return, each responsible for their portion of the tax on the reportable gain.

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