Understanding Tax Deductions on Your Rental Property

February 15, 2019 Sam

You can Include rent collected from your tenants as rental income in the current tax year. You can claim tax deductions for any expenses related to your rental property. Common rental property expenses include home insurance, heat, hydro, water and mortgage insurance. You can claim rental income and expenses on Form T776.

Here are few things to consider what you can and cannot claim;

·        Home Insurance: You can Deduct rental property insurance premiums paid towards coverage on your rental property. Claim the full amount if you are renting out a separate rental property or only a portion if it is part of your principal residence. Example: If you paid $1500 a year in insurance premiums for your rental property, you could claim the full amount on your tax return as long as the rental property is not your principal residence.

      Advertising: Fees you paid towards advertising your rental property. Some examples are newspapers, websites and trade publications etc. are all good places to advertise and claim a tax deduction. You can claim the full amount of advertising since it relates fully to your rental property. If you spend $500 to advertise your vacant apartment in the newspaper for a month, you can claim the full amount as an advertising expense on your tax return.

·        Mortgage Interest: You can Deduct mortgage interest you borrow to finance the purchase of your rental property. Deduct funds borrowed to help finance improvements to your home. Only claim a deduction for soft costs. The Canada Revenue Agency defines soft costs as funds you borrow for construction, renovations and upgrades to your rental suite to make it more suitable. Do not claim a tax deduction for mortgage principal. However, you can deduct fees related to obtaining your mortgage, such as the mortgage application, appraisal and legal fees paid to your real estate lawyer. If you paid $1500 to your real estate lawyer for closing costs, claim it on your tax return to help offset your rental income.

·       Property Taxes: You can Deduct rental property taxes paid to your municipality in the current year. Claim only the portion that relates to your rental property. For example, if you paid $4,000 in rental property taxes on your principal residence in 2018 and you rent out your basement apartment (that is 40 percent of the square footage of total area), claim $1,600 on your tax return. 

·       Utilities: Claim the full amount if you rent out the full rental property, or claim a portion if you rent out a suite in your principal residence. Deduct the following utilities related to your rental property, if you pay for them: heat, hydro, water and cable. 

Tax deductions claims you cannot make;

Here is a list of tax deductions you cannot make on your rental property. Expenses you cannot claim as deductions include

  • ·        Land transfer taxes (provincial and municipal),
  • ·         Mortgage principal,
  • ·         Your own labor cost for doing home repairs, and
  • ·         The personal amount of your expenses, such as utilities, mortgage interest or home insurance

 As individual situations vary, It is advisable to hire a tax accountant who is well versed with the procedures to advise you on your specific rental property tax matter.

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Sam is passionate about real estate and frequently writes in online industry magazines columns. The views expressed are her own