Do You Need a Property Appraisal When Converting Your Principal Residence Into a Rental?
No law says you must get an appraisal, but you should treat one as strongly recommended. When you turn your principal residence into a rental, the CRA treats it as if you sold the home and bought it back at fair market value on that date, unless you file a special election. That value becomes your starting point for future capital gains and for any depreciation you claim. A certified appraisal is the strongest proof of what the home was worth on the conversion date, and it is much easier to get now than years from now.
This is general information about valuation and how tax rules use it. It is not tax advice. Speak to an accountant before you decide.
Is This
You?
This guide is for Toronto and GTA homeowners who are about to rent out the home they live in. The most common situations are:
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You are moving for work, or abroad for a few years, and want to keep the house.
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You bought a new place and are keeping your old one as an investment.
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You are moving in with a partner or family member.
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You are renting out a basement apartment or part of your home.
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You inherited a home you lived in, or you are separating and one of you will rent it out. (For separations, also see our guide to dividing real estate in divorce.)
In every case, the question is the same: what was the home worth on the day it stopped being your home and became a rental?
What the CRA
Treats as Happening
When a property changes from personal use to income producing use, the Income Tax Act calls it a change in use. Unless you make an election, you are treated as having sold the property at fair market value on that day and bought it right back at the same amount.
Two things follow:
A deemed sale can create a capital gain on paper. If the home is worth more than you paid, the difference is a gain. Because it was your principal residence, the principal residence exemption often shelters it, but the numbers still need to be worked out and reported correctly.
The fair market value becomes your new cost. It is the starting point for all later gains and for any depreciation (capital cost allowance) you claim on the building.
Either way, the value on the conversion date is the number everything else rests on.
The 45(2) Election
in Plain Language
The tax rules include an election under subsection 45(2). If you make it, the change in use is treated as if it never happened. There is no deemed sale at conversion, and you can generally keep treating the home as your principal residence for up to four years while it is rented, as long as you meet the conditions.
Conditions commonly described by Canadian tax advisers:
You report the rental income on your tax return.
You do not claim capital cost allowance on the property.
You do not designate another property as your principal residence for those years.
You file the election with your return for the year the change happened. The CRA may accept a late election in some cases, but that is at its discretion.
Longer periods can apply in some work relocation situations, and the rules for renting out only part of a home have changed in recent years, so ask your accountant how they apply to you.
The election is popular because it can shelter the gain on a home you sell within a few years of renting it. The trade off is giving up depreciation. Which choice is better depends on your plans, and that is a decision for an accountant, not an appraiser.
So Do You Still
Need an Appraisal?
Often yes. Here is a quick guide.
| Your situation | Worth getting? | Why |
|---|---|---|
| Not filing the election | Strongly recommended | The deemed sale price and your new cost both depend on the value |
| Filing the election | Recommended | If the election ends or you rent longer than the time allowed, the value on the conversion date still matters |
| Planning to claim depreciation | Strongly recommended | Depreciation applies to the building only, so you need land and building separated |
| Renting only part of the home | Recommended | The value of the rented portion may have to be worked out |
| Selling within a year or two | Recommended | Your accountant needs both values to calculate the gain |
| Planning to move back later | Recommended | A record of the starting value helps if the use changes again |
| Property is in a market that has fallen | Recommended | A written value at the right date protects you in a more technical situation |
Why it helps even with the election. Years later, you have to prove what the house was worth on a specific day, and nobody remembers. If you need to value it after the fact, a retrospective appraisal can do it. See retrospective appraisals in Toronto and CRA retrospective appraisal requirements. Still, it is easier, and usually cleaner, to get it at the time.
A Simple
Example
Illustrative numbers only
You bought your Toronto home for $600,000 and lived in it for years. On the day you move out and rent it, an appraiser values it at $900,000.
You are treated as selling at $900,000, so your gain on paper is $300,000, which your principal residence exemption may shelter. Your new cost is $900,000. If you later sell for $1,000,000, the gain for the rental period is $100,000.
There is no deemed sale. You keep your original cost for now, and the home can stay treated as your principal residence for up to four years while rented, if conditions are met.
Either way, a written value for the day you moved out protects you. If you choose the election and the CRA later asks about the conversion date, or you lose the election, the evidence is already in your file.
What Counts as
Good Evidence of Value
| Evidence | Strength |
|---|---|
| Certified appraisal by a qualified appraiser | Strongest |
| Realtor comparative market analysis | Useful, but less formal |
| Online home value tools | Weak, and unreliable for unusual homes |
| MPAC assessment | Not a market value, and often dated |
What to Ask
Your Appraiser to Include
The effective date, which is the date the property stopped being your home and became a rental.
A market value supported by comparable sales around that date. See how appraisers determine market value.
Land and building separated, if you plan to claim depreciation.
The condition at that date, including upgrades. See how renovations affect property value.
The rented portion, if only part of the home is changing use. See how appraisers value multi unit properties and garden suites, laneway suites, and multiplex potential.
An estimate of market rent, if you want help setting the rent.
Why the Timing
Matters in the GTA
Values in the GTA have moved. TRREB's September 2026 report showed the composite benchmark price down 4.7% from a year earlier, and a July 2026 industry report put condo prices down about 9.5% compared with about 2% for detached homes. If you wait two years to document the value, the gap between today and the day you moved out can be large, and the second one is the number you need. A value tied to the right date avoids arguments later.
Your Checklist Before
the First Tenant Moves In
Talk to your accountant about the election, depreciation, and your plans.
Pick your conversion date and write it down.
Order an appraisal as of that date.
Check your insurance. A landlord policy should reflect rebuilding cost, which is different from market value. See replacement cost appraisals for insurance.
Keep your records in one folder: the appraisal, renovation invoices, purchase documents, and rental income and expenses.
Set the rent using local market evidence.
File the election on time, if that is your decision.
Mistakes
to Avoid
Assuming the principal residence exemption means no paperwork. You still have to report correctly.
Claiming depreciation without thinking it through. It can affect the election and create tax on a later sale.
Missing the election deadline. It goes with your return for the year of the change.
Using a listing price as proof of value. It is an ask, not a sale.
Waiting years to document the value. Retrospective appraisals work, but they are harder, and the home may have changed.
Ignoring other tax rules. Short term rentals, HST on certain changes, and family transfers have their own rules. See fair market value for family property transfers and tax implications of property appraisals.
Moving Out Soon?
Get Your Home's Value on Record
Tell us the address, the date the home becomes a rental, and whether you want land and building separated. We reply within one business day with a fee quote.
Frequently Asked
Questions
Do I legally need an appraisal to convert my home into a rental?
No. But the CRA treats the change as a sale at fair market value unless you elect otherwise, and you may need to prove that value later. A certified appraisal is the strongest proof available.
What does the CRA mean by a change in use?
It means you start using the property for a different purpose, such as moving out and renting the home. Unless you make an election, you are treated as having sold it and bought it back at fair market value on that date.
What is the 45(2) election?
It is an election under the Income Tax Act that lets you treat the change in use as if it never happened, generally for up to four years. Conditions apply, including reporting the rental income and not claiming depreciation. Confirm the details with an accountant.
If I file the election, can I skip the appraisal?
You can, but many owners get one anyway. The conversion date value may matter later if the election ends, if you sell after the four years, or if the CRA asks questions.
Can I get the appraisal after I have already rented the home?
Yes. A retrospective appraisal values the home as of the earlier conversion date. It is easier when done soon after, while market data is fresh.
Does the appraisal separate land from building?
It can. This is useful for depreciation, which applies to the building, not the land. Ask for the allocation when you order the appraisal.
Is an MPAC assessment good enough?
No. MPAC values are for property tax purposes and may not reflect market value on your specific conversion date.
What if I rent only part of my home, like a basement?
That may count as a partial change in use, and the value of that portion may need to be determined. Ask your accountant how the rules apply to you.
Will I owe tax when I convert?
Not necessarily. The principal residence exemption often shelters the deemed gain, and the election can defer it entirely. Your accountant can tell you what applies to your situation.
How much does a conversion appraisal cost, and how long does it take?
Fees depend on the property and the scope. Seven Appraisal Inc. replies to quote requests within one business day and typically delivers residential reports in about 2 business days after the visit. Retrospective or multi unit cases can take longer.
Who else should I speak to besides an appraiser?
An accountant who handles rental income and capital gains, and a mortgage professional if you need financing. If you are refinancing, see our refinancing appraisal guide.
What if the market has dropped since I bought?
The rules get more technical, so a written value for the conversion date matters even more. Ask your accountant how it affects your numbers.
Ready to Rent Out Your Home?
A Conversion Date Appraisal
Protects You From Day One
Seven Appraisal Inc. provides AACI designated, CUSPAP compliant appraisals for Toronto and GTA homeowners, including retrospective reports for the CRA. For related reading, see our capital gains appraisal service and appraisals for investors.
No obligation. We reply within one business day.