I'm trying to think through a situation for my brother where he co-owns two homes, one of which is with me which he wants to gift to me. I'm not sure how principal residence exemption works on his second home. OH also, the properties are in Canada, Ontario and we are all Canadian citizens.
My brother's situation is this:
2006 to 2019 - a jointly owned house with me
2012 to 2019 - a jointly owned second house with his wife
My brother wants to "give" (I don't know yet what give means, whether it is a gift, or a purchase etc...) me his half of the house that he co-owns with me entirely to me, because let's say for argument that I paid all the expenses and mortgage and everything related to the house. Let's also say he claims principal residence exemption for 13 years from 2006 to 2019 as part of the land transfer. Because my brother lived in our house during that whole time. And now in 2019, after "giving" the house to me, he will live with his wife in the house they purchased together in 2012.
Now let's say 2 years from now in the year 2021, my brother and his wife want to sell their house and buy and move into a different house. Does that mean my brother has to pay capital gains tax on 7 years of this second house (2012 to 2019), and can have only 2 years of principal residence exemption (2019 to 2021)?