Renovation costs in rental property

[Crymson]

Hey,

So with tax season upon us and as we innevitably realize how ridulously much tax we pay, i've been thinking about ways to reduce my taxable income.

If you buy rental properties, and then spend money renovating them, is the money you spent a writeoff against your taxes - similiar to people who write of small business expenses?

It's probably not, but it would seem like an easy way to convert taxable income to at least capital gains.

[Dilmah]

If all you want to do is reduce your taxes then just make less money... If you want to make more money then you need to look at the amount of money you put into the rental and compare that to how much you can increase the rent. ROI, return on investment... your question sounds like all you want to do is pay less tax, even if that means spending more then what you'll save.
So to save $200 in tax you want to spend $1000, why not save the $1000 and spend the $200 on tax, you'll be up $800... Now if you spend $1000 and get $200 back from tax and increase the rent by $66/month then in one year you'll make your money back, then in year 2 you'll make $800-taxes.

[Crymson]

Originally posted by Dilmah
If all you want to do is reduce your taxes then just make less money... If you want to make more money then you need to look at the amount of money you put into the rental and compare that to how much you can increase the rent. ROI, return on investment... your question sounds like all you want to do is pay less tax, even if that means spending more then what you'll save.
So to save $200 in tax you want to spend $1000, why not save the $1000 and spend the $200 on tax, you'll be up $800... Now if you spend $1000 and get $200 back from tax and increase the rent by $66/month then in one year you'll make your money back, then in year 2 you'll make $800-taxes.

I'm talking about using pre tax dollars to increase the equity in a property then either renting at a higher price of flipping it and only paying the capital gains on that increase. Saves what 20-30% of the tax assuming your reno dollars are converted 1-1 into equity?

[gran turismo]

You pay tax on the "profit" you make on your property. Simply, that's your income (rental income) minus expenses (mortgage interest, property tax, renovations etc.) So by increasing your expenses by doing renos, then your profit will be less and you'll pay less tax.

[lint]

Originally posted by Crymson


I'm talking about using pre tax dollars to increase the equity in a property then either renting at a higher price of flipping it and only paying the capital gains on that increase. Saves what 20-30% of the tax assuming your reno dollars are converted 1-1 into equity?

Don't pay attention to Dilmah because his answer is retarded and reeks of TurboD.

Expenses for the maintenance of the rental property can be written off against that investment. As long as you're not holding the property in a corporation, that investment "loss" can be applied to your personal taxes.

[Crymson]

Originally posted by lint


Don't pay attention to Dilmah because his answer is retarded and reeks of TurboD.

Expenses for the maintenance of the rental property can be written off against that investment. As long as you're not holding the property in a corporation, that investment "loss" can be applied to your personal taxes.

And when it's sold for a profit, it's simple capital gains?

That's exactly the answer i was looking for.

Point is, i'm sick of handing over so much $$ to the Goverment.

[lint]

Originally posted by Crymson


And when it's sold for a profit, it's simple capital gains?

That's exactly the answer i was looking for.

Point is, i'm sick of handing over so much $$ to the Goverment.

bingo. You can also take it further as nothing says that the revenue from the investment needs to be used to service the investment. ie, you don't have to pay the mortgage on your investment property with the rent collected. You can take out a loan to pay off the interest on the rental mortgage, upkeep, renovations, etc. Why? Because all of the rent collected can then be used to pay down your personal mortgage faster, debt where the interest isn't tax deductible.

[Xtrema]

As much as I hate paying tax, I would never improve a rental property. Just do whats needed.

Improve on your residence where there's no capital gain and write it off against your rental property.

But of course within reason and not for stuff CRA can call you out on. i.e., light bulbs, smoke detectors, furnace cleaning, new water tank etc.

[broken_legs]

Heres how I break up expenses:


Capital Cost Appreciation:
- New roof
- Update Kitchen
- Finish Basement

These costs are not expenses, they are treated as though you are increasing the capital you invested into the house.

This matters only when you sell the house.

If you bought it for 200,000. Then put on a new roof for 15,000, your cost on the house goes up to 215,000.

Thus if you sell it for 215,000, you owe no taxes on the "profit" because you capital cost had increased and in the eyes of the CRA you have not actually profited.

If you do sell the house for more than your capital cost (price of house + upgrades) then that is treated as Capital Gains. ((BECAUSE YOU GAINED CAPITAL))


Repair and Maintenance & Interest:
- Management
- Repairs
- Maintenance

This is the daily stuff like sending a plumber to repair a pipe, cleaning the unit when its vacant, paying a mgmt company etc.. Also the interest on the mortgage/loan w/e can be treated the same.

All of these expenses are written off against your income, whether it be personal or from the house itself. Ideally, you'd be writing off more than you make from the house to get back some of your personal income tax.

[Crymson]

But the capital you invested into the roof of a revenue property would be write off against your personal income?

[broken_legs]

Originally posted by Crymson
But the capital you invested into the roof of a revenue property would be write off against your personal income?

No.

Please read CCA vs Write Off again.