Investor Tax Advice

Rental Property Expenses – What are the expenses and are they tax-deductible?

Rental Property Expenses – What are the expenses and are they tax-deductible
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All successful real estate investors know that generating consistent passive income by renting out property is complex. Land taxes and mortgage payments are just a few of the significant operational costs of owning a rental property. Even the savviest of landlords would find it challenging to keep their heads above water on investment with all these such expenses.

Table of Contents - Rental Property Expenses – What are the expenses and are they tax-deductible?

However, the real estate investors are borne to taking advantage of various tax breaks, all thanks to Revenue Canada’s aid. Investors can increase the amount of passive income they earn from their assets by taking advantage of these deductions. However, you will need to consult with a professional tax preparer or someone familiar with managing and applying these deductions if you want to take advantage of them all.

Tax Disclaimer

Make sure you are getting the most out of your tax deductions! Minor errors could result in you overpaying– or worse, underpaying– your federal and provincial tax obligations. Although taking advantage of deductions can be highly beneficial to your investment plan, be cautious when doing so! 

Look up to an experienced tax consultant regularly to ensure that you are working within the law’s parameters. Moreover, before sending your tax return to Revenue Canada or your provincial tax office, make sure it has been reviewed by a licensed tax professional.


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What to Claim and How to Claim it?

Running a rental property as an investment is costly. However, many of these operating costs can be deducted from your federal taxes, enhancing your ability to benefit from your real estate investment in terms of profit generation.

You are responsible for not only the payment of federal taxes but for paying local and regional taxes on your land as well. Although you may be entitled to deduct these operating costs on your federal tax return, you may not be able to deduct them on your local tax return. Here are a few examples of the operational expenses that you can subtract from your federal taxes.

Advertisement Expense

It takes a lot of time and money to market the property to potential tenants. Fortunately, you can subtract a portion of your promotional expenses from your federal tax bills. Before claiming advertisement costs on your federal tax return, check with a professional tax consultant because the amount can vary based on various factors.

Interest Rate

You will potentially subtract your interest costs from your federal tax bills if you are already paying down your investment property’s mortgage. Moreover, you can also subtract the interest if you take out a loan to improve your home. You may be expected to pay tenants interest on the rental deposits they give you before move-in in some provinces; if this is the situation, you are eligible to cut down on your interest as well.

Insurance Expense

The insurance you pay to ensure your rental property can be deducted by Revenue Canada. However, you will only subtract the sum covering the current tax year if you paid for a policy that covers more than one year. You will cover the remaining portion of the premium in the years that it is due.

Management Fee

You will find yourself lucky if you hire a property management company to handle the administration of your rental property; it is a tax-deductible cost! You can also subtract the costs of leasing agents that assist you in identifying and qualifying potential tenants. Moreover, if you hire an employee to manage the property on your own, then too can you save by subtracting their salary.

Utility Expenses

You cannot assert utility expenses as a tax deduction if you split the building’s utility expenses and expect your tenants to cover their costs. However, whether you pay for gas, electricity, water, or garbage as a part of your lease agreement, you will subtract these costs from your federal tax liability.

Travelling

Property owners often find themselves travelling between properties to collect rentals, assess the damage, file paperwork, or make repairs. You will be relieved to hear that you can subtract travel costs from your federal tax bills if you spend both time and money travelling to protect your investment properties. Depending on the circumstances, you will even be able to deduct motor vehicle expenses.

Land Taxes

Land taxes on investment properties can be deducted for the period the property was available for rent in Canada. Local governments levy property taxes, but their relationship with your federal tax burden can be a bit complicated. Before claiming property tax costs on your federal return, consult with a tax professional.

Professional Fee

If you are a property investor, you will almost certainly have to deal with a lawyer regularly. To purchase new assets, draft lease agreements, and obtain late fees, you will need their assistance in one way or the other. Fortunately, you might be able to subtract legal costs from your federal tax bills in some cases.

Get Familiar with the Concept of Capital Cost Alliance

The Capital Cost Alliance (CCA) is a tax deduction tool that allows you to report your property’s depreciation as a tax deduction. The CCA deduction is calculated according to a schedule based on the asset’s age and investment structure. Consult a tax advisor to determine while claiming your CCA deduction and how you can maximize its value.

You can use CCA to deduct more than the expense of the property. For example, any large pieces of equipment that you use to maintain your house, as well as hefty appliances like stoves and refrigerators, can qualify for CCA credits. In addition, improvements and added extras to your rental property can be claimed separately as a CCA deduction. 

Get to Know the Tax Code

Learning how to take advantage of Canada’s tax code will not only help you get the most out of your real estate investment but will also ensure that you get the higher possible return on your investment. Although it may seem complicated, with the right tax advice and professional help, you can Canada’s tax code work in your favor as an investor. The deductions have all been introduced– all you have to do is to figure out what they are and how to apply them. 

Rental Property Tax Deductions


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