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If you own rental property, you should think of it as running a business.
Many of the responsibilities are the same or similar. You have to claim the income on your taxes, keep all your invoices and receipts, and be accountable every step of the way.
On Tuesday, we walked you through the basics of claiming your rental property on your T-1 income tax return.
But you know there’s nothing basic about taxes, right?
The good news is, you have several opportunities to reduce your rental-property income with deductions.
Deductions on rental property income
We’ve dedicated many posts on this blog to help small business owners — from sole proprietors to incorporated entrepreneurs — learn more about their deductions.
The deductions for rental-property income are not dissimilar.
When your property becomes vacant and you’re looking for new tenants, you need to get the word out. Any advertising costs — from online rental listings to the classifieds in your local newspaper — are deductible.
You can deduct the premiums for insurance coverage on your rental property.
You can deduct interest on any money you borrow to buy or improve your rental property. This also applies to any interest you pay to tenants on their security or damage deposits.
While you can’t deduct the principle amount of any loan, you can deduct some fees, including:
- Mortgage application, appraisal, processing and insurance fees
- Mortgage guarantee fees
- Mortgage broker and finder’s fees
- Legal fees related to mortgage financing
Your office supplies are a deductible expense. These can include small items such as pens, pencils, paper clips, stationery and stamps.
Legal, accounting and other professional fees
You might need the help of any number of professionals to operate your rental property. You can deduct the fees paid to legal services to prepare leases or collect overdue rent. Your costs to hire a bookkeeper or accountant are also eligible.
Management and administration fees
Maybe you feel like you can’t do it all alone. You might enlist the help of a property manager or real-estate agent to collect rent or find new tenants. Any fees you pay for managing your rental property are eligible for deduction.
Maintenance and repairs
If you pay for repairs to your property, you can deduct the cost of labour and materials. You cannot, however, deduct the value of your own labour.
You can deduct amounts paid or payable to superintendents, maintenance personnel and others you employ to take care of your property. You can also deduct your portion of the Canada Pension Plan contributions, Employment Insurance premiums and workers’ compensation board amounts.
Any insurance premiums you pay for an employee — related to sickness, accident, disability or income insurance plans — are also eligible.
Property taxes on your rental property are eligible for deduction but only when relating to the period when the property is available for rent.
Travel and motor vehicle expenses
If you own rental property, supervise repairs and manage your own properties, you can use your travel expenses as deductions. These include the cost of getting to your rental property, but not board and lodging.
The Canada Revenue Agency has travel and motor-vehicle expenses on separate lines for your T-776 form but they’re related, of course.
If you own one rental property, your motor-vehicle expenses are eligible if you:
- The rental property is in the general area where you live
- You personally do a portion of or all of the necessary repairs and maintenance on the property
- The expenses relate to transporting tools and materials to the property
If you own two or more rental properties, you can claim your motor-vehicle expenses if you need your vehicle to collect rent, supervise repairs and generally manage the property.
You must keep a log book, including odometer readings, along with all your receipts as proof of your motor-vehicle expenses. Last month, we posted a how-to on keeping a good logbook.
If you pay for the utilities — gas, oil, electricity, water and cable — at your rental property, they are an eligible deduction. Your rental agreement or lease must specify that you pay for the utilities in question.
If your tenant is responsible for the utilities, you cannot claim them.
This is a catchall spot for the deductions that don’t fit into the other categories. These expenses might include landscaping costs, lease cancellation payments, condominium fees and costs related to maintenance of vacant land.
Costs can’t outweigh income
Always remember one important factor about taxes: Your expenses can never create or increase a loss on your income.
You can, however, carry forward any unused expenses, applying them to a future tax year when the expenses may come in handy to offset your taxes.
Can you help?
We’re here to assist you with your taxes and planning. We specialize in small-business accounting and financial services. Contact one of our tax specialists and we can help you optimize the tax benefits and credits available to landlords, self-employed individuals and small businesses.
Fill out our contact form or give us a call at 403-226-8297.
The Canada Revenue Agency has an active Twitter account. If you’re interested in following the account, you can the CRA at@CanRevAgency.
And don’t forget us! We’re on there, too, talking about taxes and business, especially for small businesses and entrepreneurs. Find us at @A1Acct. While you’re at it, like us on Facebook