An investor owns three properties: a principal residence, a cottage used personally 60% of the time and rented 40% of the time, and a pure rental property. For tax planning purposes, how should the cottage be treated?
Correct Answer
B) Deduct 40% of expenses as rental expenses and designate as principal residence for remaining years
For mixed-use properties, expenses must be allocated based on the proportion of rental use (40% in this case). The cottage can be designated as a principal residence for years when beneficial, but the investor can only claim one principal residence exemption per family per year.
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