Tax question for rental property

[Hemi-Cuda]

TLDR is that we bought a new house and are renting out our condo until next year when hopefully we can sell it when the market is better. The amount of rent that we're charging is more than what the mortgage payment is, but it's less than mortgage + condo fees. So question is, do we need to claim this as rental income even though the property expenses are greater than the income? And if we have to claim it, will we have to actually pay any additional taxes?

[Superfraggle]

The principal part of your mortgage payments is not deductible in Canada.

[lazypucker]

You can deduct from your rental income the property tax, condo fees, utilities (if you are paying), condo repair costs, plus the interests you paid on your mortgage. Any free (or paid) tax software will have a special function to help you calculate this come tax time.

[calf]

Super Fraggle has it right about principal on the mortgage not being deductible.

So, you'll need to figure out the amount of rent received vs interest, condo fees, and any other related expenses on the property you have while renting it out (utilities, maintenance and repairs).

Whether you're earning or losing, it's a good idea to report it anyways. Losses can be offset against other sources of income to reduce your tax bill.

https://turbotax.intuit.ca/tips/clai...-property-6385

If you haven't yet, get an appraisal done to establish the value of your rental property on the date you started renting it out. When you sell you need to compare the sold price (less commissions and legal fees) to the value on that date, not when you bought it. The gain or loss you'd need to claim when you sell is your proceeds less that deemed value.

Hiring an accountant would help as well to ensure you have it all straight should an audit happen - worth the investment and troubles that could occur.

[Locke]

Originally Posted by calf

Super Fraggle has it right about principal on the mortgage not being deductible.

So, you'll need to figure out the amount of rent received vs interest, condo fees, and any other related expenses on the property you have while renting it out (utilities, maintenance and repairs).

Whether you're earning or losing, it's a good idea to report it anyways. Losses can be offset against other sources of income to reduce your tax bill.

https://turbotax.intuit.ca/tips/clai...-property-6385

If you haven't yet, get an appraisal done to establish the value of your rental property on the date you started renting it out. When you sell you need to compare the sold price (less commissions and legal fees) to the value on that date, not when you bought it. The gain or loss you'd need to claim when you sell is your proceeds less that deemed value.

Hiring an accountant would help as well to ensure you have it all straight should an audit happen - worth the investment and troubles that could occur.

Very comprehensive advice.

[Eric Vail]

If your expenses (interest on your mortgage, condo fees, advertising, maintenance, etc.) are greater than the rent you are collecting, you actually will get a tax benefit.

You can also claim a home office if you are managing it from home. That means you can write off a portion of your utilities and internet costs.

[speede5]

All of what Calf said plus the forms you need can be found here;

https://www.canada.ca/en/revenue-age...come-2016.html

[The Cobra]

One more thing, you cannot utilize depreciation to create a loss to use against other income.


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[loob job]

Originally Posted by calf

Super Fraggle has it right about principal on the mortgage not being deductible.

So, you'll need to figure out the amount of rent received vs interest, condo fees, and any other related expenses on the property you have while renting it out (utilities, maintenance and repairs).

Whether you're earning or losing, it's a good idea to report it anyways. Losses can be offset against other sources of income to reduce your tax bill.

https://turbotax.intuit.ca/tips/clai...-property-6385

If you haven't yet, get an appraisal done to establish the value of your rental property on the date you started renting it out. When you sell you need to compare the sold price (less commissions and legal fees) to the value on that date, not when you bought it. The gain or loss you'd need to claim when you sell is your proceeds less that deemed value.

Hiring an accountant would help as well to ensure you have it all straight should an audit happen - worth the investment and troubles that could occur.

I have owned a few rental properties and i believe you are wrong about the appraised value of your unit being the base of the cost.

Upon sale, any profit you earned on the rental property over and above your initial cost will be treated as a capital gain. Capital gains are taxed at 50 percent of the gain, whereas recapture is 100 percent taxable,” That is right from Turbotax.

[calf]

Originally Posted by loob job

I have owned a few rental properties and i believe you are wrong about the appraised value of your unit being the base of the cost.

Upon sale, any profit you earned on the rental property over and above your initial cost will be treated as a capital gain. Capital gains are taxed at 50 percent of the gain, whereas recapture is 100 percent taxable,” That is right from Turbotax.

If you bought the place initially to earn income, yes. But if it was your principal residence first, which you then turned to a rental unit, you're deemed to have sold it when you did that conversion and that deemed value is your cost base when it's a rental property. I suggest an appraisal as that cost base is easy pickings for an auditor.

https://www.canada.ca/en/revenue-age...anges-use.html

[mivdo]

Forgive me for piggybacking on this thread. I am currently looking to upgrade as well but seeing as we bought our duplex right before the recession, the current value is well below what we bought it for. We have thought about buying now and renting out or duplex for the foreseeable future, but I would like to know what exactly I am walking into before we pull the trigger.

What exactly are the tax implications, do I find renters myself or go with a property manager etc.

[Ahuch]

Originally Posted by mivdo

Forgive me for piggybacking on this thread. I am currently looking to upgrade as well but seeing as we bought our duplex right before the recession, the current value is well below what we bought it for. We have thought about buying now and renting out or duplex for the foreseeable future, but I would like to know what exactly I am walking into before we pull the trigger.

What exactly are the tax implications, do I find renters myself or go with a property manager etc.

Generally speaking if you can afford the risk, the longer you can rent it out the more it makes sense.

Tax stuff is pretty straight forward - accountants can probably help you out but I just do mine myself. You can claim mortgage income, condo fees, basic non capital stuff. The big one you can't claim is anything principal for obvious reasons, and that's going to push you towards taxable income.

I find my own tenants on Rent Faster for my condo, but might move over to a property manager eventually.. My tenants almost never bug me, but when they do call it's always at the worst possible time (on vacation, dealing with a car issue, etc)

[loob job]

Originally Posted by calf

If you bought the place initially to earn income, yes. But if it was your principal residence first, which you then turned to a rental unit, you're deemed to have sold it when you did that conversion and that deemed value is your cost base when it's a rental property. I suggest an appraisal as that cost base is easy pickings for an auditor.

https://www.canada.ca/en/revenue-age...anges-use.html

Ah, missed the part where it was his principal residence originally, thought it was a pure investment property.

[Flamenspiel]

Although I am not an accountant, I would highly recommend that you hire one once you start adding multiple sources of income. CP is not a substitute for a professional.

[mivdo]

Originally Posted by Ahuch

Generally speaking if you can afford the risk, the longer you can rent it out the more it makes sense.

Tax stuff is pretty straight forward - accountants can probably help you out but I just do mine myself. You can claim mortgage income, condo fees, basic non capital stuff. The big one you can't claim is anything principal for obvious reasons, and that's going to push you towards taxable income.

I find my own tenants on Rent Faster for my condo, but might move over to a property manager eventually.. My tenants almost never bug me, but when they do call it's always at the worst possible time (on vacation, dealing with a car issue, etc)

Thanks for the reply.

By risk I assume you mean whether or not there will be renters? As in, being able to afford two mortgage payments at the same time. That has crossed my mind. We would be okay for a few months, longer term gets a bit dicey but I dont think the rental market is that dead.

Also, other than maintenance costs, property taxes, damage from tenants. Is there anything else I am overlooking?

[Ahuch]

Originally Posted by mivdo

Thanks for the reply.

By risk I assume you mean whether or not there will be renters? As in, being able to afford two mortgage payments at the same time. That has crossed my mind. We would be okay for a few months, longer term gets a bit dicey but I dont think the rental market is that dead.

Also, other than maintenance costs, property taxes, damage from tenants. Is there anything else I am overlooking?

Risk being anything that could come up unexpectedly. You might end up with broken appliances, then have no tenants for 3 months, insurance claim from a hailstorm, whatever the case might be...

I keep a larger savings bubble around for the rental just in case.

[Fighting Banana Slug]

All good advice. I have had a rental (either the basement suite while I was living there, or the whole house once I found a new place) going on 20 years. Definitely not "free money", but it isn't that hard to do yourself, so long as you are reasonably handy.

Finding tenants and doing your due diligence on them is a pain. RentFaster I find is a good way to do it. Pay some money for your ad, but worth it as it just seems like your ad will not be lost in a sea of Kijiji crap. Turbo Tax or whatever program you might use for your personal taxes works well on the tax front (I think you need to get the premium version, but not a big deal).

Hopefully the day to day stuff is basically nothing, but you will find more broken door handles, toilets that won't flush or other minor annoyances that never seemed to happen when you lived there. Par for the course that you will become an expert patch and paint guy/gal. Can be fun, but it S Happens always at the most inopportune time.

Edit: And don't expect to be swimming in cash at the end of it. Probably not my greatest investment, but hopefully the market will turn and your place will appreciate to a point you aren't taking a loss.

[mivdo]

I dont plan on making money on it on a month to month basis.
Id like to break even but even if I am down a couple hundred a month, budget wise. Id be okay with that. In the long term its about the equity.