Rental Income

[doublet]

Hey Guys,

As I have recently started to rent my house out, a thought has occured to me. I will have to pay tax on my rental income. Now I already end up paying more tax at the end of the year and I figure some of you must be in the same spot as myself. What have you guys done to avoid having to pay, or paying less tax, on this income? Real Estate management companies? Investment companies? Any help is appreciated.

[TomcoPDR]

Some people might (I'm just ASSUMING) just take cash from the people living there, and then not report it.

Edit: To elborate, there're no laws against you letting anyone you invite to live in your house, and in return there're no laws against said person "accidentially leaving cash" laying on the kitchen counter and that cash just "accidentially" ends up in your pocket, by mistake (you thought it was your money that was left on the counter)

[doublet]

I like your thinking, however maybe I should ellaborate on my original post. I am renting my entire house so don't live there anymore.

[masoncgy]

If you own two properties, which I would assume you do, you would be wise to report the rental income before the tax man figures it out later on...

You can deduct a ton of expenses... most importantly all of the interest you are paying on the mortgage, so in the end, unless you are raking in huge profits every month, your taxes due won't really be overly significant.

I wouldn't try to hide it...

[Xtrema]

Report it.

Interest portion and all house maintenance expenses are deductible. Whatever left is profit and income.

There isn't much ways to reduce taxes but since its income, it does increase your RRSP limit for next year.

[TomcoPDR]

Originally posted by doublet
I like your thinking, however maybe I should ellaborate on my original post. I am renting my entire house so don't live there anymore.

shit sorry, I misread thinking you're renting out to roommate... in the case of completely renting your house out, report it, lol... BUT, make sure you keep records when it started to become revenue property, because before that, you don't pay capital gains on the years when that was your primary residence. (when you sell the house, let's say you made $10,000... you lived there for 2 years and rented for 3, only $6,000 would be subject to capital gains, etc...) As far as my understanding.

[iroccragg]

Im also looking at renting out my house and building another one; now what if you dont make any money renting it out - can you deduct that from your income, also how do capital gains work when you sell it, we bought it in 2005 so its appriciated well

[doublet]

I wasn't ever tinking of hiding the money at all. I was wondering if it is worth seting up a business to save myself from having to pay more tax at the end of the year. Thanks for the help on that front guys. If the house is not making any profit on the rent...it is being rented for less then the mortgage. Is it essentially claiming a loss at that point?

[cloud7]

To my understanding if you are taking a loss, which is actually no that uncommon, you get to claim it against your personal income tax.

[Xtrema]

Originally posted by cloud7
To my understanding if you are taking a loss, which is actually no that uncommon, you get to claim it against your personal income tax.

Your cap loss can only be used against on cap gain. Not other incomes.

[Criticull]

If you rent out a condo, are condo fees deductible since they're usually maintenance oriented?

[masoncgy]

Originally posted by Criticull
If you rent out a condo, are condo fees deductible since they're usually maintenance oriented?

Yes, they are an incurred expense and can be reported as such.

[whodiman]

Originally posted by TomcoPDR


shit sorry, I misread thinking you're renting out to roommate... in the case of completely renting your house out, report it, lol... BUT, make sure you keep records when it started to become revenue property, because before that, you don't pay capital gains on the years when that was your primary residence. (when you sell the house, let's say you made $10,000... you lived there for 2 years and rented for 3, only $6,000 would be subject to capital gains, etc...) As far as my understanding.

Cap gains are reported on the value of the house when it was converted to a rental against the sale price or the value if/when it gets converted back. One of the ways you are officially supposed to do it is have an appraiser to do it and pay them to do it. CRA does not actually view a regular realtor's appraisal as good enough. I asked my realtor to do this and he referred me to a guy that specializes in this as he said his own apraisal would not be good enough for CRA.

[quazimoto]

If it is a rental property then the mortgage is also an expense against the revenue you are earning. So if you want you can actually claim a net business loss doing it this way.

This way you'd only pay taxes when you sell the property.

[bighead2267]

what about property tax, can you write that off as well?

[quazimoto]

Yes you can since its a revenue property. Consider the home like a business. Anything that comes in or goes out financially needs to be accounted for.

My view on it is if you have a mortgage on the property you are not pocketing anything so paying tax on it shouldn't be happening right now. When you sell the home paying capital gains should also save you a little as well.

[masoncgy]

You don't deduct the entire mortgage expense though... you are taxed on the income after expenses... so if you have a small mortgage but a market value rental rate per month, you will be paying taxes on that income for sure.

Most people who are new into the rental home business will be renting at par or at a loss simply due to the real estate costs... but those who have been doing this for awhile and have mortgage payments that are far less than the monthly rental income pay a good amount of tax on the income.

You are pocketing the payment to the principle each month...