Renting Your Property ? - What Expenses Can I Deduct On My Taxes..

Acquiring a property is a dream come true. You can now use your real estate to begin earning income. Income can come in the form of equity or cash flow. In either scenario, reducing your taxes will increase both. Expenses are a normal, legal method provided by the CRA to reduce your taxes. However, there are rules that every landlord should be aware of. But before we do, remember USING EXPENSES TO LOWER TAXES IS A NORMAL PART OF DOING BUSINESS, so do not feel you are doing anything wrong.

Lets look at some common Don'ts and Do's.

Don'ts

1) Principal Portion of Mortgage Payments - When you make a mortgage payment there are two components to it, principal and interest. The principal portion is lowering your loan and in a way you are paying yourself back. CRA does not consider this and expense, therefore you may not use as taxable deduction (on the bright side, interest portion can be deducted. See below for "Do's")

2) Personal Portion of Eligible Expenses - There are many expenses that you encounter which are necessary and allowed in order to run your rental property. However, some of those expenses can sometimes be blurred between rental expenses and personal expenses. A good example of that is if you occupy a portion of the property you rent. The utilities expense, which is tax deductible, is only deductible to the portion that is used by the tenant.

3) Land Transfer Tax - When you sell your home you typically encounter a land transfer tax. The land transfer tax on your sold home is not tax deductible on your future purchased rental property.

Do's

1) Interest Portion of Mortgage Payments - When you make a mortgage payment there are two components to it, principal and interest. As mentioned above (See Don’ts). Although the Principal portion of the payment is not tax deductible, the Interest portion is (Yah!).

2) Repairs & Maintenance - Every property, rental or not requires repairs and maintenance as the property ages. The expenses incurred to repair and maintain your rental property is tax deductible. Examples of such expenses include hiring someone to mow the lawn, fix the plumbing, paint the living room, plow the snow. There is however difference between maintaining your property and improving it. There are separate rules for permanent property improvements which we will explore in a separate post.

3) Travel - Any travel required to tend to your rental property is tax deductible. Such expenses may include but are not limited to gas and meals while traveling in order to attend to matters at your rental property. Such matters include traveling to perform repairs, deal with emergency situations, travel to receive rent money from your tenant. Such matters do not include hotel expenses you may incur going to and from your property.

4) Vehicle - Most rental property owners do not own a vehicle that is exclusively used for travel related to there rental. In most cases, the vehicle they own and use for personal use or travel to the 9-5 job is the same vehicle used for rental property travel. As such, only expenses related to the rental property use are tax deductible. Such vehicle expense include gas, repairs, interest on vehicle loans. Principle payments towards vehicle loans nor purchase price is not deductible. These expenses are deductible as part of CAA deductions which we will discuss in a separate post.

5) Other common allowable expenses include insurance, property tax, and utilities.

No matter the expenses you incur, always remember that they are limited to the extent to which they relate to your rental property!

Any further questions ? Leave a comment or contact us directly.