If you are simply going to claim the capital gain for the period that it was rented, then on the S3PrincipalResidenceDetail form you check off that you are claiming the principal residence exemption for some but not all of the years, then fill in the part of the T2091 where it asked for the # of years you are claiming the exemption, the proceeds, expenses related to the disposition, and the adjusted cost basis. The program will determine the taxable portion of the gain. For purposes of the principal residence, any part of a year in which the taxpayer resided in the property is treated as a whole year, plus the formula gives them one more year of exemption automatically. If you have had a change in use like you describe, there might be an election available which will provide a further 4 years of principal residence exemption, but the details of that would go beyond what can be provided in this forum.
