Expenses allowed on a rental

[Gen1GT]

With a rental property, what expenses will the government allow? For instance, let`s say you put in 8% for vacancy allowance, and 10% set aside for repairs. And let`s say you had no repairs for the year, and no vacancies for the year. Will the amount in the bank at the end of the year be assessed as income and taxed, if any? Or are they legitimate expenses?

Is there any advice anyone would like to add for rental property in regards to expenses?

 

[fumbrunner]

QUOTE (Gen1GT @ Apr 21 2010, 05:46 AM) With a rental property, what expenses will the government allow? For instance, let`s say you put in 8% for vacancy allowance, and 10% set aside for repairs. And let`s say you had no repairs for the year, and no vacancies for the year. Will the amount in the bank at the end of the year be assessed as income and taxed, if any? Or are they legitimate expenses?

Is there any advice anyone would like to add for rental property in regards to expenses?


You claim what you actually spent. An no, you cannot claim a vacancy allowance. Take a look at the CRA site for their rental income guide. There are also differences between capital expenses and repairs and maintenance. Finally, find a good accountant that understands the details of the tax system with respect to investment properties.

 

[Thomas Beyer]

you show net rent collected and deduct actual and reasonable expenses, such as: interest on a mortgage (but not principal), repairs, an appropriate portion of your home office, mileage to drive there and inspect, ads in newspapers, a portion of REIN education, insurance, utilities (if any), management fees to yourself / spouse or 3rd parties etc.

If positive still, deduct CCA (aka depreciation on house value excl. land of 4% annually) .. and then usually you are negative and pay no income taxes on rental income !

Be reasonable on home office or car or personal management expenses .. so don`t deduct 12 trips from Calgary to Edmonton if you have a 1BR condo that rents for $800 .. but maybe one or 2 trips only .. nor deduct your entire house cost @ $2000/month for management of a duplex !

 

[Gen1GT]

If your taxable income from the property goes negative for a few years, is it cummulative?

 

[jeffjas]

QUOTE (Gen1GT @ Apr 22 2010, 05:57 AM) If your taxable income from the property goes negative for a few years, is it cummulative?


I`d recommend you take an H&R tax course (pretty cheap) and do some reading so that you can understand and properly analyze an income statement.

 

[Gen1GT]

QUOTE (jeffjas @ Apr 22 2010, 11:08 PM) I`d recommend you take an H&R tax course (pretty cheap) and do some reading so that you can understand and properly analyze an income statement.


So instead of just answering the question (which is why this forum exists), you want me to wait a few months while I find, sign up for and complete this tax course? Sounds like an inefficient use of time to me. LOL

Not that education isn`t very important, because it is...

 

[fumbrunner]

QUOTE (Gen1GT @ Apr 23 2010, 05:40 AM) So instead of just answering the question (which is why this forum exists), you want me to wait a few months while I find, sign up for and complete this tax course? Sounds like an inefficient use of time to me. LOL

Not that education isn`t very important, because it is...

Or you could do a bit of research before posting questions that are easily found on this site and others. And yes, this type of research is essential if you want to be successful in the RE game.

 

[jeffjas]

QUOTE (Gen1GT @ Apr 23 2010, 05:40 AM) So instead of just answering the question (which is why this forum exists), you want me to wait a few months while I find, sign up for and complete this tax course? Sounds like an inefficient use of time to me. LOL

Not that education isn`t very important, because it is...


Why would you think that this is an inefficient waste of time, if the outcome is that you could save hundreds or thousands of $$$ by increasing your financial intelligence.

You can ask all the questions you want, I just provided a response that would pretty much answer all the basic questions you have about the subject. Read the Rental Income Tax Guide from CRA, its a very easy read and doesn`t take a month, maybe an hour or 2.

If you took this as criticism then you have a long, hard road ahead of you in the real estate investment business.

 

[Gen1GT]

It`s a steep learning curve, and there is only so much time in the day. Tell you what...why don`t we all lobby to have this forum shut down, because the only way to learn is by attending seminars and reading books.

Or, if you have the knowledge to answer a SIMPLE QUESTION, then do it. If you`re such an expert from all the seminars and books, go ahead and pass it along to idiots like me, who obviously don`t have what it takes in the real estate investment business.

The fact of the matter, is that I`ve read 9 books and taken a weekend seminar in the past three months. I`ll do my best to attend a the H&R Block seminar between my full time job and taking care of my two children under 2 years old.

Maybe my mistake was starting a thread to educate myself and others on a topic I was weak on. I`m a hydraulic specialist by trade, and since threads are only allowed to be started by persons whom are an expert on the topic, I`ll start a topic about load sensing, pressure compensated, variable displacement piston pumps.

 

[Gen1GT]

QUOTE (jeffjas @ Apr 23 2010, 02:14 PM) Why would you think that this is an inefficient waste of time, if the outcome is that you could save hundreds or thousands of $$$ by increasing your financial intelligence.

You can ask all the questions you want, I just provided a response that would pretty much answer all the basic questions you have about the subject. Read the Rental Income Tax Guide from CRA, its a very easy read and doesn`t take a month, maybe an hour or 2.

If you took this as criticism then you have a long, hard road ahead of you in the real estate investment business.

I didn`t say it was a waste of time, I said it was an inefficient use of time. I`m all for increasing my FI, but it`s not too much to ask to answer a simple question when asked.

Regardless, thank you for the advice. I`ll have to give that tax guide a read...

 

[housingrental]

Gen1GT:

You have strangers dedicating time for no possible benefit to themselves to help you.

I can understand your frustration with learning a new area and the difficulty in doing this caused by time constraints and stress from your job and family life. However these are no reason to lash out at other people who have been generous with their time. You should take this as an opportunity to gain knowledge and be thankful for the help you`ve provided.

I think you should ask yourself what do you hope to accomplish by your last few posts?

 

[AndyLuchies]

Don`t get the wrong idea about this forum. We`re here to help and we enjoy helping. Some people here recognize that you can save yourself a lot of time by getting a decent foundation all at once, instead of simply asking one question at a time (since you may be asking questions that misunderstand the basic way the CRA sees your rentals).

I`m not an expert by any means, but I`m fairly sure you can carry forward a loss just like in a business (as far as I understand). There may be time limitations on that sort of thing, a few years or something....? The problem is that at some point CRA starts to ask questions because the only way to treat your rental as an income property is to be producing income. If you consistently generate a loss, CRA can simply say that you do not have the property for the intent of making money...which means no tax deductions allowed (e.g. renting below market rates to a relative generates a loss, but isn`t allowed by CRA).

(Of course, if your property is losing you money before you look at CCA, you need to take the ACRE course or become a REIN member because you`re not helping anyone with a property that eats your lunch).

ALSO, you`ll find some quick basic answers on the internet to the intro questions about tax on real estate..... much quicker than waiting a day or so for people here to respond.

 

[AndyLuchies]

I found it very helpful to completely separate my real estate investment calculations into two VERY different realities
(for lack of better terms)
1. My REAL calculations.
2. My tax calculations.

(In fact, I don`t know how anyone could NOT separate them).

REAL calculations include things like actual cashflow, money budgeted for expenses, mortgage payments, vacancy allowance, estimated appreciation, etc.
Tax calculations include things like gross rent collected, actual expense receipts, mortgage INTEREST payment only, CCA, % of home expenses if you have a home office, etc.

If you`re doing it right, your REAL calculations will say "I`m making money" while your tax calculations say "I`m just scraping by." Of course, if you`re doing your real estate investing right, it gets harder and harder to send the message to CRA that "I`m just scraping by."

Even though both sets of calculations are aimed at answering the question "how much money am I making?" they come around to the answer differently.

 

[AndyLuchies]

Here`s a recent post from Don CAMPBELL that may really help out as well:

Hey All,

Lots of tax questions this time of the year. So we`ll be hosting a LIVE discussion on the Globe & Mail web-site on Monday the 26th at noon eastern (9am pacific).

Here is the link (where you can set a reminder) on Globe & Mail http://bit.ly/dfbMuV

Submit your questions at the site. It is hosted by The Globe so they will be choosing the questions.

CYA there

Don R. Campbell

 

[Gen1GT]

Thanks for the solid answers, Andy.

 

[Gen1GT]

QUOTE (housingrental @ Apr 24 2010, 12:44 PM) Gen1GT:
You have strangers dedicating time for no possible benefit to themselves to help you.

I can understand your frustration with learning a new area and the difficulty in doing this caused by time constraints and stress from your job and family life. However these are no reason to lash out at other people who have been generous with their time. You should take this as an opportunity to gain knowledge and be thankful for the help you`ve provided.

I think you should ask yourself what do you hope to accomplish by your last few posts?

I`ve been part of dozens of forums in the past decade, and I agree that this is a great description of how a forum works; strangers that dedicate time for no possible benefit to themselves. I`ve done it myself...you have a question about cars, hydraulics or physics, then I`m your man. But I post here because there is an assumption that I`m on the receiving end of wisdom. If you don`t know the answer to the question I ask, then that`s fine; but maybe that particular thread doesn`t deserve a response. Some persons, like Thomas, always have great feedback and answer the question asked. If you can answer the question, AND direct me towards more information, then that`s ideal.

There is no frustration on my part related to the steep learning curve of real estate, only to the responses I received in this thread. Also, I didn`t say once that I was stressed; only that I was busy.

I appreciate that Jeff and Gerry responded, but their answers negate the point of posting questions in an internet forum thread.

 

[housingrental]

Hi Gen1GT:

We`ll agree to disagree then on there posts.
I think Andy hit the issue on - you`d be best served by learning more, like taking the course that the poster recommended. Asking one off questions when lacking a basic understanding of the system isn`t the best way to go. You end up taking risk with your $$ you don`t need to. I think the posts were desireable and you should take the advice.... even if you don`t agree no need to be rude... They were just trying to help you...

QUOTE (Gen1GT @ Apr 24 2010, 07:15 PM) I`ve been part of dozens of forums in the past decade, and I agree that this is a great description of how a forum works; strangers that dedicate time for no possible benefit to themselves. I`ve done it myself...you have a question about cars, hydraulics or physics, then I`m your man. But I post here because there is an assumption that I`m on the receiving end of wisdom. If you don`t know the answer to the question I ask, then that`s fine; but maybe that particular thread doesn`t deserve a response. Some persons, like Thomas, always have great feedback and answer the question asked. If you can answer the question, AND direct me towards more information, then that`s ideal.

There is no frustration on my part related to the steep learning curve of real estate, only to the responses I received in this thread. Also, I didn`t say once that I was stressed; only that I was busy.

I appreciate that Jeff and Gerry responded, but their answers negate the point of posting questions in an internet forum thread.

 

[Gen1GT]

I think the reason I came across abrasively, is that everyone has assumed I know nothing about accounting or income statements. I know the difference between debits and credits, I know that you can deduct interest and depreciation, and unlike many sophisticated real estate investors, I know how to apply the time value of money to real estate (via net present value). However, I simply didn`t know if you could expense preemtively, like with a future expensive such as vacancy allowance.