So, you are a rental property owner with several rental properties or a few rooms in your residence?
Well, that doesn’t matter; the CRA (Canada Revenue Agency) treats you and the other rental property investors and tycoons much similarly. Unlike those moguls, you want more income from your small rental property.
But at the end of the month, you have to report all your income, the taxes hit your bank account, and you get nothing. However, do you know that you can deduct expenses from your rental expenses? Yes, you heard it right! This guide contains all the vital information about rental expenses you can deduct.
Let’s Understand Rental Property Tax Deductions
If you are a rental property owner, this question might be in your mind “Do I have to declare all my rental income on my tax returns? Is it possible to make deductions from it?
The short answer is YES; you can make deductions from it, but you must report all of your rental income to CRA since it is taxable. We will discuss those deductions in detail, but first, you must understand the two categories of expenses CRA acknowledges.
Two Expense Categories that CRA Acknowledges
It is possible to deduct reasonable expenses in order to get rental income. There are two types of expense categories that CRA recognizes, namely capital expenses and current expenses. Let’s learn more about them in-depth: –
- Current Expense: A current expense recurs after some time, and the example that CRA provides for this expense is the charges of painting the exterior of your wooden property. After some time, you will need to repaint the exterior to protect it and give it a new look.
- Capital Expense: This type of expense adds value to your rental property and offers long-lasting convenience. As per CRA, capital expenses extend the useful life of your rental property and improve its condition. Placing vinyl siding is one of the best examples of capital expenditure as it offers long-lasting convenience to the residents.
Rental Expenses You Can Deduct
After determining the difference between capital and current expense, you can file your property taxes properly. It’s time to look at the deductions of rental expenses that can benefit rental property owners.
- Office Expenses
- Home Insurance
- Improvement, Repairs, and Maintenance Cost
- Property Management Fees
- Travel Expenses
- Legal and Accounting Fees
Let’s discuss all these expenses one by one in-depth!
Property owners who advertise their rental property in newspapers, websites, magazines, and other similar places can claim a tax deduction for their expenses. Do not forget to include the finder’s fee in the claim if you have paid for that.
As the name suggests, a property owner can deduct the value of expenses incurred in the office. It may include the price of small items, including stationery, pens, paper clips, pencils, and stamps. However, bear in mind that deducting capital items expenses is not possible, which may include filing cabinets, desks, and chairs.
Does your rental property have insurance? Do you pay premiums for the coverage of your rental property? There is some great news if you answer yes to both these questions. You can deduct the expenses you have incurred for the insurance of the house or building throughout the year. But you can only deduct the premium for the current year.
Improvement, Repairs, and Maintenance Cost
Improvement, repairs, and maintenance are normal in rental property. They take a fortune from us in short amounts. Therefore, remember to deduct the expenses of labor and materials used for maintenance and minor repairs. However, deducting the value of own labor is not applicable.
Also, deducting the costs an individual property owner incurs for capital repairs is impossible, but capital allowance is applicable.
Property Management Fees
It refers to the cost the property owner pays an organization or an individual to manage their rental property. Also, you can deduct other payments that fall under this category, including the fees to find a new tenant.
So, if you have hired a property manager for your rental property, it’s time to claim a deduction.
Sometimes, property owners prefer to collect rent on their own instead of hiring a property management company. So, if you are one of those property owners, subtract the travel expenses incurred to supervise repairs, manage your property, and collect rent.
However, travel expenses you can deduct include the expenditure of approaching your rental property, not the lodging and boarding, as they are considered personal expenses. You must meet the requirements mentioned on the CRA motor vehicle expenses page to claim the travel expenses.
Legal and Accounting Fees
The fee property owners pay to hire different types of professionals is deductible. Examples of this type of rental expense include legal fees for preparing paperwork and collecting overdue rent. However, you are not allowed to deduct the legal fee you incurred to buy your rental property from your gross rental income.
Most property owners are unfamiliar with the fact that they can deduct rental expenses. Even some are confused if they have to report their total rental income. So, the answer is yes, one has to declare their total rental income, and they can claim deductions from it while paying taxes. The list of deductible rental expenses is mentioned in this comprehensive guide.
So, read this guide before you pay your taxes and ensure no mistakes in filing the tax returns. However, if you struggle to figure out the exact amount of taxes, you have to pay, fret not; a reliable property management company like ours can help you with that.
After reading this guide, you will hopefully comprehend and understand the deductible rental expenses. Thanks for reading!