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Thread: Tax implications on Rental Property

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    Default Tax implications on Rental Property

    I know there are some accountants out there that can help me out or direct me to a website with the info. I'm wondering what are the exact tax implications in regards to a rental property.

    Do you calculate the tax by multiplying your marginal tax rate by the full monthly rent chaarged? Or is it your marginal tax rate multiplied by the monthly mortgage payment? Or is it just the amount put towards the principal?

    Any help would be greatly appreciated!

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    Default Re: Tax implications on Rental Property

    Originally posted by SteveMo600
    I know there are some accountants out there that can help me out or direct me to a website with the info. I'm wondering what are the exact tax implications in regards to a rental property.

    Do you calculate the tax by multiplying your marginal tax rate by the full monthly rent chaarged? Or is it your marginal tax rate multiplied by the monthly mortgage payment? Or is it just the amount put towards the principal?

    Any help would be greatly appreciated!
    1.) You can write off the interest paid on the mortgage each year.

    2.) Capital Cost Appreciation (reduces tax paid if you sell house at profit) Ie you put in a new furnace, remodel the kitchen, replace the roof.

    3.) Write off repairs and maintenance (Management, maintenance etc..) against rental income.

    4.) You only pay tax on net rental income. Ie you rent the house out for 1500/mth but your mortgage and other costs = 1500/mth. You make no money, thus pay no tax because as a business your rental home is not turning a profit.

    5.) The part i really like is that the write offs (mortage interest, repairs maintenance etc...) go against your personal income tax

    Hope that helps
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    Keep in mind that if you claim CCA on a rental property, you kill the prospect of ever using the property as your principal residence and thus benefiting from the principal residence exemption.
    "I believe that banking institutions are more dangerous to our liberties than standing armies. If the American people ever allow private banks to control the issue of their currency, first by inflation, then by deflation, the banks and corporations that will grow up around the banks will deprive the people of all property until their children wake-up homeless on the continent their fathers conquered."
    -Thomas Jefferson 1802

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    Originally posted by Mckenzie
    Keep in mind that if you claim CCA on a rental property, you kill the prospect of ever using the property as your principal residence and thus benefiting from the principal residence exemption.
    Unless you ask for cash, and keep the whole thing under the table, nothing you can do about that.

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    can i write off any special assesments towards maintenance?

    any downside to write off the taxes on rental property?

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    I too am interested in this.

    I am trying to sell my condo, but not getting many bites. It's not that I'm asking too much overall, but maybe just expecting too much out of our current market.

    My girl and I are considering trying to buy a home together, and have considered renting out my condo until the market recovers.

    So apparently the rent is not taxable if your expenses are the same or more than the amount of the rent. That's good to know.

    You can write off the mortgage payment interest? Interesting. Can anyone expand on this, and how it is written into your taxes?

    How much, roughly, would capital gains be when the home increases in value? What do they go by - sold price or assessment price? Would they take the value increase from the point I move out of my condo? How does that work?

    What do you guys think about the idea of buying another home right now while the market is low? What are the chances it is going to go even lower and now I'm holding TWO undervalued properties... ?

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    All the facts straight from the CRA

    http://www.cra-arc.gc.ca/E/pub/tg/t4036/t4036-07e.pdf

    Includes some information on CCA (Capital Cost Allowance, not Appreciation).

    Originally posted by broken_legs
    4.) You only pay tax on net rental income. Ie you rent the house out for 1500/mth but your mortgage and other costs = 1500/mth. You make no money, thus pay no tax because as a business your rental home is not turning a profit.
    Not completely true. You can't deduct repayment of principal on mortgage or loan on a rental property. So if you rent out your place for $1500/month and pay $1500/month in mortgages. Chances are a portion of that mortgage payment is going towards the principal and cannot be deducted.

    A rental property is also only a business if you provide other services on top of renting the unit to your tenants.
    ---

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    Originally posted by Kloubek
    What do you guys think about the idea of buying another home right now while the market is low? What are the chances it is going to go even lower and now I'm holding TWO undervalued properties... ?
    If you can afford it sure. But be prepare for negative cash flow.

    The problem is that so many people can't sell their properties right now and turning them into rental to wait it out. The market is very competitive now and there is no way rent will cover mortgage payments (for properties that were bought in the last 2.5 year), let alone taxes and other expenses.

    As I have mentioned before, there are houses in the 2000sqft range going for $1600/mth. Not to mentions hundreds of condos under $1000.

    Also, don't forget city is about the raise taxes as well which will add anywhere $10-$30/month in cost.

    Just remember, there were years before/during the housing boom that you have to give a lot of incentives to get a tenant. Most of the time you can't even collect all 12 months of rent for a typical year. If the housing price ease, and interest rate stay low, there will be more buyers than renters and we may be heading back there again.
    Last edited by Xtrema; 11-10-2008 at 04:22 PM.

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    Originally posted by Xtrema


    Unless you ask for cash, and keep the whole thing under the table, nothing you can do about that.
    How exactly does one gain cash by claiming CCA? It's a depreciation expense used to minimize tax implications....

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    Originally posted by liquid1010


    How exactly does one gain cash by claiming CCA? It's a depreciation expense used to minimize tax implications....
    I think what they meant was have the rent paid in cash (so under the table) and not report any rental income on you personal taxes.

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    CCA is a purely optional deduction for any business, whether a hot dog stand or Encana, so you do not have to deduct CCA.

    I'm not sure what is really being said but it can be avoided.
    "I believe that banking institutions are more dangerous to our liberties than standing armies. If the American people ever allow private banks to control the issue of their currency, first by inflation, then by deflation, the banks and corporations that will grow up around the banks will deprive the people of all property until their children wake-up homeless on the continent their fathers conquered."
    -Thomas Jefferson 1802

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    Originally posted by Mckenzie
    CCA is a purely optional deduction for any business, whether a hot dog stand or Encana, so you do not have to deduct CCA.

    I'm not sure what is really being said but it can be avoided.
    But if you have a capital asset there is no point on deferring the CCA if there is positive income. Not like rental income will be 2-3x more in the future.

    Keep in mind you cannot create a loss or further increase a loss with CCA expense.

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    Originally posted by KappaSigma

    Keep in mind you cannot create a loss or further increase a loss with CCA expense.
    That's the big thing that people often forget.......

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    Originally posted by KappaSigma


    But if you have a capital asset there is no point on deferring the CCA if there is positive income. Not like rental income will be 2-3x more in the future.

    Keep in mind you cannot create a loss or further increase a loss with CCA expense.
    Well there is a point in many cases.

    1- If you ever plan on living there, then it is stupid to claim it as it kills the principal residence exemption.

    2- If you ever plan on selling it, your capital gain will be MUCH higher since you are depreciating the cost base of the asset.

    Therefore, if you are planning on keeping the property for a long time, it is a good idea or if you have a large project, but generally I would advise against it if the time period is shorter.
    "I believe that banking institutions are more dangerous to our liberties than standing armies. If the American people ever allow private banks to control the issue of their currency, first by inflation, then by deflation, the banks and corporations that will grow up around the banks will deprive the people of all property until their children wake-up homeless on the continent their fathers conquered."
    -Thomas Jefferson 1802

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    Originally posted by Mckenzie


    Well there is a point in many cases.

    1- If you ever plan on living there, then it is stupid to claim it as it kills the principal residence exemption.

    2- If you ever plan on selling it, your capital gain will be MUCH higher since you are depreciating the cost base of the asset.

    Therefore, if you are planning on keeping the property for a long time, it is a good idea or if you have a large project, but generally I would advise against it if the time period is shorter.
    I agree. Depends on the situation. Just stating some info that people tend to over look.

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    I thought I would revive this thread instead of making a new one.

    Can any of you landlords recommend a good accountant who deals a lot with clients who have rental properties? I have one and this will be the first year I am doing my taxes since getting it. I want to maximize my return on this.

    Anybody in Airdrie would be ideal, but any recommendation is greatly appreciated.

    Another question: can you claim for depreciation of your asset? For example you buy a rental property for $248,000 and now it is probably worth $220,000. Can you somehow use that to your advantage?

    I am not concerned about the price because it is a positive cash flow property plus there are many other considerations to use when deciding on a rental property. Thanks!

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    Originally posted by msouther
    Another question: can you claim for depreciation of your asset? For example you buy a rental property for $248,000 and now it is probably worth $220,000. Can you somehow use that to your advantage?
    Only when you sell and only against your capital gains.

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    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!
    Originally posted by beyond_ban
    Are you looking for a happy ending?? If so, PM me...

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    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!
    I don't understand how you get a negative income.
    If your mortgage payment is say, for example, $1500 per month. Only about half of that is interest. So your net income will be roughly $750. Even if your rent is $1300 (a $200/month loss) you're still getting a net income of $550/month. Less any maintenance/repair costs, but I can't see that adding up over your net gain.
    My sister rents out a condo. She breaks even with rent. But because her net income over the year is close to $10,000 (roughly what gets paid on the principal) that gets added to her total yearly income and therefore she gets hit with taxes of about $4,000 on that $10k net gain.
    Last edited by C_Dave45; 11-23-2015 at 08:20 AM.

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    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. Your taxable income would go up by $100k for this year which can certainly put you in a higher tax bracket which are higher than ever due to NDP and Liberals in power now. On another note, you can only amortize the building portion and not the land value of the property.

    Feel free to PM me if you have more questions.

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