CCA for Rental

[Z_Fan]

Hoping someone can help me on tax question.

CCA for a Rental Property.

Here is the question, all the CRA guides say you need to calculate the CCA based on the year you acquired the property. We we acquired the property in the late 90's...BUT, I mean, we didn't acquire the property "for rental" until 2010. My feeling on this is that I should just be able to look up the City of Calgary Property Assessment for that year, and use that number as the starting point for the Capital Cost Allowance calculations. But, I need to know if that is how it works?

We already owned the home, so technically we didn't pay any lump sum to acquire it at this time. Yet it still obviously needs to have some starting point for the CCA deduction. Advice?

[superflychief]

What you're suggesting is exactly what we did with my wife's house when we rented it. I looked at the city's property assessments and talked to some builders in the area for comparables house/lots and estimated a price based on that. We didn't have any issues for the 2 yrs we rented the place.

[Z_Fan]

Yeah, I figure it is the most logical thing to do.

I did find this...


...
You can be considered to have sold all or part of your
property even though you did not actually sell it.
For example, this is the case when:

- you change all or part of your principal residence to a
rental property;

- you change your rental property to a principal
residence; or

- you stop using a property to earn or produce income.

Every time you change the use of a property, you are
considered to have sold the property at its fair market
value (FMV) and to have immediately reacquired the
property for the same FMV
...

[Z_Fan]

So now I have more questions.

It says that the CCA amount includes the purchase price (which I decided is the FMV as per City of Calgary assessments) B U T it says it is less the value of the land.

How do I determine the value of the land? Other than what I paid for it. Ha. Bet you can't buy corner lots like this for $32k anymore. :poosie:

[superflychief]

It's just an estimate. Call builders in the area and ask what their lots are going for that could be comparable. They obviously know you can't give them specifics but give them something reasonable and have backup for your info. You could always have an appraisal done on your house and they can tell you what the lot would be worth.

[Z_Fan]

Ok. So I've got pretty much everything figured out.

Ha.

Until I was reading that CCA can not be used to create or increase a loss on a rental property.

Which means, I don't have to claim anything under the CCA.

I'm using Turbotax.

But what I want to know is do I still put this information about the starting number for the CCA in place...? And does the UCC (undepreciated capital cost) increase by the amount that the CCA should have been, so that next year, when I will have an operational income as opposed to loss that I can use the CCA to essentially zero out any gain for next year.

And then the year after that, when there are no UCC's, I'll claim the CCA to the max again but will still have a net rental gain so will pay tax on that gain at that point?

Or do I do fuck all with the CCA until I need it - which will be next year, when the first full year of rental will occur.??

Making any sense?

[Z_Fan]

Right, so I guess I do nothing with CCA since I don't ever actually have to do anything with CCA unless I feel like it.

I guess if for some reason you had a big rental gain, and needed a way to offset it, you could start using your CCA. But it looks to me like you'd need to keep in mind that you could have recaptured CCA upon disposal of the property.

For now, it appears doing nothing at all with CCA is best. Other than to document / establish exactly what the CCA should be so when one day you wish to use it, you know what the starting point actually should be.

[superflychief]

CCA is used to reduce your income but not create a loss.

[Z_Fan]

Yep.

We've got a loss already, so can't use CCA.

[tenth]

Originally posted by Z_Fan
Right, so I guess I do nothing with CCA since I don't ever actually have to do anything with CCA unless I feel like it.

I guess if for some reason you had a big rental gain, and needed a way to offset it, you could start using your CCA. [/u]But it looks to me like you'd need to keep in mind that you could have recaptured CCA upon disposal of the property.[/u]

For now, it appears doing nothing at all with CCA is best. Other than to document / establish exactly what the CCA should be so when one day you wish to use it, you know what the starting point actually should be.
After what looks like quite a bit of reading and thinking, I'm impressed with your anlaysis. You're right, unless property values tank, taking CCA now is just going to create recapture later.

It's likely still advantageous to claim the CCA due to the time value of money, but you need to be mindful of the tax bill you'll likely have as a result later. As a general rule, if a property is going to be sold soon, I don't claim CCA on the building.