Rental Property Tax Deductions

Do you collect rent?

Are you thinking about renting out your basement suite?

Rental Property Tax Deductions is for you if it is your goal to earn income from a  fair market value rental fee. Fair market value being the key phrase here, you must be on par with other rentals in the area. Charging lower rent to create a loss or for a family member or close friend who can't afford the full price, will not be considered a rental property to the CRA.

Rental property tax deductions add up very quickly which is something you already know if you  have a rental property. But if you don't it may be a bit on the shocking side to find out all of the expenses that you are eligible to deduct.

Lets begin by discussing what tax deductions may be a surprise to you or are less commonly known:

• The real estate tax deduction is available and entitles you to deduct any fees charged from the real estate agent.


• Rental property depreciation is another rental property tax deduction that is available you, this deduction basically includes the depreciation of the  building, over time .

Because land is not a depreciable asset you must separate the cost of the land from the cost of the buildings for the purpose of the Capital Cost Allowance Statement. Capital Cost Allowance (CCA) is the deduction you are entitled to claim over a period of several years on depreciable property (property that gets worn out over time and loses value).

Second home tax deductions are also included in this category if they are rental properties.

A brief list of Rental Property Tax Deductions available are as follows:

• Mortgage Interest - You can deduct interest on money borrowed to buy or improve your rental property. This is one of the costlier rental deductions.
  

• Property Taxes - You can deduct property taxes, assessed by a province or territory and by a Canadian municipality, that relate to your rental property for the period when it was available for rent.


• Utilities - You can deduct expenses for utilities, such as gas, oil, electricity, water, and cable, if your rental arrangement specifies that you pay for them.

• Maintenance and Repairs - If you pay for repairs to your property, you can deduct the cost of labour and materials. However, you cannot deduct the value of your own labour.


• Management Fees - You can deduct the amounts paid to a person or a company to manage your property. You can also deduct amounts paid or payable to agents for collecting rents or finding new tenants.

• Advertising - You can usually deduct amounts for advertising that your rental property is available for rent.

• Legal, Accounting and Other Professional Fees - You can deduct fees for legal services to prepare leases or collect overdue rents. Bookeeping and Tax Preparation fees are deductible if you needed help because of your rental property.

Three  expenses that are not allowed, so beware.

1. Do not deduct any personal living expenses.
2. The principal amount of the Mortgage is not a deduction.
3. Do not deduct auto expenses for driving to collect rental income if you only have one rental property. But if you personally do the repairs and maintenance on the property and need to transport the tools you require, then by all means go ahead, the claim will be allowed.

More detailed information and forms on Rental Property Tax Deductions can be found on the CRA links below

T4036 Rental Income Guide

T776 Statement Of Real Estate Rentals

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