Tax implications on Rental Property

[Xtrema]

Originally posted by nj2Type-S
BUMP!

sorry for bringing this thread back to life, but i'm sure that this will pop up again near tax season.

i have a duplex as my rental property. last year, i lost $100/month on it. my tenants moved out yesterday, and i had to lower my rent to keep competitive. i will lose about $200/month on my next lease term.

has anyody on here experienced negative income on their rental property? if so, has claiming it as a loss on your personal income tax ever been beneficial in terms of getting a tax return? this will be my first time claiming for my rental property.

thanks!

Cash flow negative $200 or actually lost $200? As Dave said, it's different.

If you are cash flow neutral, you still earned the principle toward mortgage, which is close to 50% of your payment or more if you are under 20 year amortization. And that money toward your principle is taxable.

It's very rare to claim a lost unless vacancy or pricey repairs.

[TomcoPDR]

Also if you not want it as paper loss. Maybe talk to accountant to do captial cost on the property, but discuss the tax implications of course (don't think u can go back and forth)

[540i]

Sorry to piggy back this thread...I have a scenario where I have a rental property which I have not depreciated at all and have been renting out for the last 9 years. Last year I got hit with a $60,000.00 special assessment. We had a building envelope issue and had to repair the entire exterior of the complex, located on 15Ave S.W behind Una Pizza on 17th. I'm not sure if this is considered a maintenance or a capital type of expenditure? My question is...and may be C_Dave45 can answer this.... should I expense $60,000.00 for the year or amortize it? My gut tells me I should amortize, I'm just not clear on the tax implication because I have not depreciated the building and it was once my primary residence? Would amortizing my special assessment set off any red flags under my circumstances? I intend to rent out this property as long term as possible.

Thanks.

[ExtraSlow]

I'm not an expert, but if I was in your situation, I would spend an hour or two discussing this with a professional accountant.

[Xtrema]

Originally posted by 540i
Sorry to piggy back this thread...I have a scenario where I have a rental property which I have not depreciated at all and have been renting out for the last 9 years. Last year I got hit with a $60,000.00 special assessment. We had a building envelope issue and had to repair the entire exterior of the complex, located on 15Ave S.W behind Una Pizza on 17th. I'm not sure if this is considered a maintenance or a capital type of expenditure? My question is...and may be C_Dave45 can answer this.... should I expense $60,000.00 for the year or amortize it? My gut tells me I should amortize, I'm just not clear on the tax implication because I have not depreciated the building and it was once my primary residence? Would amortizing my special assessment set off any red flags under my circumstances? I intend to rent out this property as long term as possible.

Thanks.

Remember, lost is only good as tax avoidance on gains. So unless you have another taxable gain of $60k somewhere during this year, may not be a good strategy.

As to if all $60K can be written as expenses or increase the mortgage to pay the assessment, you probably need to talk to a professional.

[roopi]

Originally posted by 540i
Sorry to piggy back this thread...I have a scenario where I have a rental property which I have not depreciated at all and have been renting out for the last 9 years. Last year I got hit with a $60,000.00 special assessment. We had a building envelope issue and had to repair the entire exterior of the complex, located on 15Ave S.W behind Una Pizza on 17th. I'm not sure if this is considered a maintenance or a capital type of expenditure? My question is...and may be C_Dave45 can answer this.... should I expense $60,000.00 for the year or amortize it? My gut tells me I should amortize, I'm just not clear on the tax implication because I have not depreciated the building and it was once my primary residence? Would amortizing my special assessment set off any red flags under my circumstances? I intend to rent out this property as long term as possible.

Thanks.

This would be a capital expenditure not maintenance. My guess is this would add to the cost base and you would recoup when you sell.

Disclaimer: Just a guess. Seek professional help as suggested.

[Cash Money Hoes]

Originally posted by DJ_NAV
I am an experienced tax accountant. Loss on rental properties do happen all the time with clients - empty months, big repairs (roof), high interest rates, big increase in condo fees can all cause losses.

To advice on earlier discussion on CCA - you could face a recapture (100% taxed) and a capital gain when you sell the property. For example, if you buy a property for $300k and amortize it down to $250k. If you sell for $400k you would face a recapture of $50k (300k -250k) plus $100k capital gain of which 50k(50%) is taxable.

One way to avoid recapturing the depreciation when selling the property is to demolish the building/house prior to sale. CCA is only applicable on the improvements to the property and not land value, so if the house is demo'd there are no improvements sold with the property to recapture depreciation on. Sounds silly but there are lots of the properties in certain parts of the city that are sold at land value and certain developers will pay more for bare land vs. knock downs (avoid incurring cost of demolition for knock downs). You would still incur capital gains but you only pay 50% of the increase for capital gains vs. 100% for recapture of depreciation.

[msommers]

Yikes that's a heck of an assessment!!

[540i]

Thanks for the feedback everyone.

[nitram]

I'll also piggyback on this thread and maybe someone can help me out.

So i purchased a place back in 2008 for about $220k. Lived there for 4 years and started renting it out. Rent minus expenses and mortgage usually means i put in extra cash, but still a slight profit from the principle being paid so i've been paying taxes for this 'profit'. Never claimed CCA.

So this year i sold the condo for $178k. I assume there's capital loss but i don't have any capital gains to claim it against. Am i SOL in getting any thing back with regards to taxes?

I've always done my taxes with Ufile, is it worth getting an accountant to look at this for some potential refund?

Thanks in advance.

[Euro838]

Nitram, it depends if you are declaring it as primary or investment, either way based on what you have written here.

total years owned - 8 years (rounding)
primary residence - 4 years (50%)
investment - 4 years (50%)

purchase price $220K
Sold price - $178K

loss - $42K

Since 50% of the time was investment, then you can carry forward a net loss of $21K for future years of capital gains. Losses and gains as primary residence are not accounted for.

FYI, not an accountant but this is how I would declare it.

[nitram]

Thanks, that was helpful.

[civicHB]

I don't think i will be able to sell what i bought for and would like to start depreciating my rental condo to assist with my annual tax bill. What is a reasonable depreciation % on a condo?

Am I even allowed depreciation?

Thanks!

[Xtrema]

Originally posted by civicHB
I don't think i will be able to sell what i bought for and would like to start depreciating my rental condo to assist with my annual tax bill. What is a reasonable depreciation % on a condo?

Am I even allowed depreciation?

Thanks!

Read up on CCA. Usually not a good idea unless you are betting your property won't go up in price forever.

[DJ_NAV]

Originally posted by Euro838
Nitram, it depends if you are declaring it as primary or investment, either way based on what you have written here.

total years owned - 8 years (rounding)
primary residence - 4 years (50%)
investment - 4 years (50%)

purchase price $220K
Sold price - $178K

loss - $42K

Since 50% of the time was investment, then you can carry forward a net loss of $21K for future years of capital gains. Losses and gains as primary residence are not accounted for.

FYI, not an accountant but this is how I would declare it.

THE ABOVE IS NOT TRUE. When the property gets converted from residence to investment the property is deemed disposed. In other words, the property is sold to yourself on the date of change in use at the market value on that date. For example:
bought for $220k
moved out when mkt value was $250k (deemed disposed and cost of investment now is $250k)
sold for $178K
capital loss : $72k

[nitram]

Originally posted by DJ_NAV


THE ABOVE IS NOT TRUE. When the property gets converted from residence to investment the property is deemed disposed. In other words, the property is sold to yourself on the date of change in use at the market value on that date. For example:
bought for $220k
moved out when mkt value was $250k (deemed disposed and cost of investment now is $250k)
sold for $178K
capital loss : $72k

Is there a standard way to determine what the value was when i moved out? Would the property assessment be what i used to assume the value at that time?

[Euro838]

Originally posted by DJ_NAV


THE ABOVE IS NOT TRUE. When the property gets converted from residence to investment the property is deemed disposed. In other words, the property is sold to yourself on the date of change in use at the market value on that date. For example:
bought for $220k
moved out when mkt value was $250k (deemed disposed and cost of investment now is $250k)
sold for $178K
capital loss : $72k

Yes, I believe DJ_NAV is correct but from what I have read, you need to file an election on the use of the property when the use of the property changed i.e. when you started renting it out after four years. I don't know what happens now as to me it would be a bit complex doing all this after the fact. I guess you can call the CRA to see what the process is or consult and accountant. Sorry if I provided any misinformation.

[88CRX]

Originally posted by nitram


Is there a standard way to determine what the value was when i moved out? Would the property assessment be what i used to assume the value at that time?

Yea how does this work?

[DJ_NAV]

Property tax assessment is not valid to determine market value for CRA.

You have few options such as :
1. Get a realtor to provide a number based on comparatives (going back in time)
2. Hire an appraiser

Option #1 is free and will work most of the time. If CRA doesn't like it then you can always do option #2. Option #2 costs around $300 if I remember correctly.

[88CRX]

Originally posted by DJ_NAV
Property tax assessment is not valid to determine market value for CRA.

You have few options such as :
1. Get a realtor to provide a number based on comparatives (going back in time)
2. Hire an appraiser

Option #1 is free and will work most of the time. If CRA doesn't like it then you can always do option #2. Option #2 costs around $300 if I remember correctly.

Letter from a realtor confirming the estimated value of the property on X date 3 years ago would be sufficient?

I assume you submit the information and the CRA either excepts or they audit your submission and ask for more proof I guess.