Great information! Thanks! I skimmed over the publication, including the section you highlight above. Right before that section, it says:
1)
"Determine whether the space used for business during the 5 years before the sale is considered to be within your home or not. If the business or rental space was physically part of the living area of your home, such as a spare room used as a bed-and-breakfast bedroom or attic space used as a home office, your business usage doesn’t affect your gain/loss calculations."
2)
"If the business or rental space wasn’t within your living space, such as a first-floor store with residence, an apartment with its own entrance (and kitchen and bath), or a working farm with a farmhouse on the property, continue to Determine whether the business or rental space still counts as a business space , next."
This is so tough, because the rental space IS our living space (not just one part of it). So in that sense wouldn't it fall under the first case, even though it is its own apartment that has its own entrance/kitchen/bath/etc? The space used for business (i.e., rental income) is fully within our home.
But if we fall under the second statement, then it sounds like we would most certainly be taxed at capital gain/loss.
But I kind of think the first statement might apply, in which case the publication says "business usage doesn’t affect your gain/loss calculations"
