First Tax season as a Landlord

Simondial

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#1
It is my first Tax season as a landlord and Property owner.
I bought my first property this year. It is divided into three units, one per floor. I live in the basement unit and rent out the other two.
I spent a couple of months and a few thousand dollars renovating the basement and have kept my receipts for everything.
I'm just wondering if anyone has any tips for the upcoming tax returns as I'm slightly worried about what I might owe having taken in extra income through rent.
Regards.
 

ThomasBeyer

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#2
You can deduct all expenses incl mortgage interest pro-rata, plus you can depreciate the income producing asset’s portion by 4% per year, excl land value. Plus you can expense a few of the upgrades as non-capital items or depreciate the capital items over 10 years too. Look up form T776 on the CRA website. All online.


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Kim8508

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#4
A professional accountant/bookkeeper who also owns income properties is ideal in my mind. More insights vs book knowledge only.
 

ThomasBeyer

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#5
For one property you can do it yourself. No need to pay $1000 to a tax accountant. Fill out form T776 ( by itself or via a software program like TurboTax) and file it.

List every reasonable and actual expense incl depreciation aka CCA of 4% of asset ( excl land ) value ! Usually no taxes payable unless low LTV mortgage say 50% or less.


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Simondial

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#6
Thanks for the responses. My accountant blew through everything rather quickly leaving me with a decent Lump to pay into an RRSP account.
I am wondering if it is possible to write off any vehicle expenses as I did use my truck to transport tools and materials while doing maintenance/renovations on the house.
 

CorySperle

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#7
I wouldn't bother for small amounts as what you get back is small and it could flag you for an audit. I wouldn't depreciate either unless your paying taxes on rental income which most aren't if you have a mortgage as it makes things more complex (and expensive) later .
 

Simondial

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I wouldn't bother for small amounts as what you get back is small and it could flag you for an audit. I wouldn't depreciate either unless your paying taxes on rental income which most aren't if you have a mortgage as it makes things more complex (and expensive) later .
Sorry but do you mean most aren't paying tax on rental income if you have a mortgage ? I must have missed something.
 

Simondial

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#9
Also my accountant has advised me not to include depreciation of 4 % as it will add capital gains if and when I go to sell the house.
 

CorySperle

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#10
Yes depreciating at 4% will have to be recaptured later, and what I meant was that even if you had a profit, the total of all your deductions including mortgage interest will usually offset your rental income resulting in zero tax payable. I'm not an accountant but what I gather is that you would depreciate at 4% only if you have significant equity, and/or large cash flow to offset your taxes owed on that year. Over a long period of time you can depreciate a significant amount, which must be paid back when you sell. I have yet to hold a property long enough to do this.
 
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KhoaN

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#11
Depends on your tax bracket now compares to the future when you sell it as well. The tax on recapture might be cheaper than income as capital gain is only 50% taxable. I find most of the accountants by default recommending not to without looking into the whole scenario. For my case, im glad that I've been writing the depreciation off all these years given the Fort Mac market price have been dropped, capital gain is unfortunately not an issue.

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Novice

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#13
Depends on your tax bracket now compares to the future when you sell it as well. The tax on recapture might be cheaper than income as capital gain is only 50% taxable. I find most of the accountants by default recommending not to without looking into the whole scenario. For my case, im glad that I've been writing the depreciation off all these years given the Fort Mac market price have been dropped, capital gain is unfortunately not an issue.

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Hi, I live in Fort Mac as well. What do you think going to happen to housing market/ houses values after Suncor starts laying off highly paid operators? Do you plan to get rid of your properties in Fort Mac?
Thank you

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ThomasBeyer

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#14
Depends on your tax bracket now compares to the future when you sell it as well. The tax on recapture might be cheaper than income as capital gain is only 50% taxable. I find most of the accountants by default recommending not to without looking into the whole scenario. For my case, im glad that I've been writing the depreciation off all these years given the Fort Mac market price have been dropped, capital gain is unfortunately not an issue.

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Tax depreciation is captured back as income.

Example:

Asset is acquired at $1.25M. Land is $250,000 and building is $1M.

In ten year building has been depreciated to say $650,000.

You sell it for $800,000. You pay income taxes on $150,000.
You sell it for $900,000. You pay income taxes on $250,000.
You sell it for $1,000,000. You pay income taxes on $350,000.
You sell it for $1,100,000. You pay income taxes on $350,000 AND capital gains taxes on half of $100,000.
You sell it for $1,200,000. You pay income taxes on $350,000 AND capital gains taxes on half of $200,000.
You sell it for $1,300,000. You pay income taxes on $350,000 AND capital gains taxes on half of $300,000.

That at least is my understanding. Happy to be corrected by a tax expert.
 
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KhoaN

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#15
Hi, I live in Fort Mac as well. What do you think going to happen to housing market/ houses values after Suncor starts laying off highly paid operators? Do you plan to get rid of your properties in Fort Mac?
Thank you

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Hi,
I think the market might take at least 2-3 years before getting any better due to continued jobs cut, existing fly in -fly out, negative net migration and new rebuilding homes... if you have at least 5 years or more timeframe, it's still ok to hold unless you see better opportunities elsewhere to deploy the equity and reduce DCR. I am reducing my exposure to invest elsewhere.

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ThomasBeyer

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#16
Hi,
I think the market might take at least 2-3 years before getting any better due to continued jobs cut, existing fly in -fly out, negative net migration and new rebuilding homes... if you have at least 5 years or more timeframe, it's still ok to hold unless you see better opportunities elsewhere to deploy the equity and reduce DCR. I am reducing my exposure to invest elsewhere.

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Which “elsewhere” is better .. and why?
 

KhoaN

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#17
I've been investing in Ottawa which is more stable and I believe it still has more upside. Also, i will move back there in the future. I'm not liquidating all my properties in fort mac, just reducing my exposure.

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Mr.Montreal

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Hi,
So if I understand correctly, depreciating your property to so that you have no taxes payable is the most desired option.
However, instead of depreciating, why not invest in small repairs and renovations that you can deduct every year. This way, you invest in your property and increase it's value, instead of paying taxes.
If this option is the best, there would be an optimal amount to put into repairs/renovations each year.
Is my logic correct?
 

CorySperle

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#19
My logic says that as a business you want to make as much money as possible, hence pay as much taxes as possible!

renovations are important, however only when necessary to rent your unit or get possible rent increases.
 
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ThomasBeyer

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#20
Hi,
So if I understand correctly, depreciating your property to so that you have no taxes payable is the most desired option.
However, instead of depreciating, why not invest in small repairs and renovations that you can deduct every year. This way, you invest in your property and increase it's value, instead of paying taxes.
If this option is the best, there would be an optimal amount to put into repairs/renovations each year.
Is my logic correct?
You repair or enhance as the market allows.

Develop the art of "good enough is good enough".

Don't over-upgrade !
 
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