hey everyone! Im a new landlord as of the first of September 1. Ive put quite a bit of money into a renovation for the tenant and have furnished their apartment with furniture and appliances! I figure i have about 30,000 invested in this. I was wondering if someone could give me an idea on what i could expect for a return this year on my taxes. I realize that this will be a hard question to answer given that i haven`t given u all the info on me. Im just a little curious! write back
Why not load Quicktax or some other tax program onto your computer and type in a few numbers? It would be impossible for anyone to guess what your results will be without knowing a whole lot of details on your family, your job, your portfolio, and your expenses.
And keep in mind that a good portion of the $30k investment may not be a tax-deductible expense, but rather would increase the building cost of your investment property. For instance, appliances are not an expense. And anything that is classified as an improvement is not an expense. Improvements add to the building cost and are only expensed as the building as a whole is depreciated.
For example, it would be an expense to replace lino with lino, but it would be an improvement if you replace lino with laminate. The new lino would be deductible this year but the laminate would add to the building cost of the property, which can only be deducted as depreciation.
Sorry, no simple answers.
Regards,
Sherilynn
And keep in mind that a good portion of the $30k investment may not be a tax-deductible expense, but rather would increase the building cost of your investment property. For instance, appliances are not an expense. And anything that is classified as an improvement is not an expense. Improvements add to the building cost and are only expensed as the building as a whole is depreciated.
For example, it would be an expense to replace lino with lino, but it would be an improvement if you replace lino with laminate. The new lino would be deductible this year but the laminate would add to the building cost of the property, which can only be deducted as depreciation.
Sorry, no simple answers.
Regards,
Sherilynn
QUOTE (HydroHead @ Sep 12 2010, 10:54 AM) hey everyone! Im a new landlord as of the first of September 1. Ive put quite a bit of money into a renovation for the tenant and have furnished their apartment with furniture and appliances! I figure i have about 30,000 invested in this. I was wondering if someone could give me an idea on what i could expect for a return this year on my taxes. I realize that this will be a hard question to answer given that i haven`t given u all the info on me. Im just a little curious! write back
Hey all,
Long time lurker, recently actually signed up for the forums, figured I might as well post on this one.
If you`ve just bought the property and are now renovating it, ALL those costs would be considered capital and added to the cost of the property. The `capital cost` of the property is the purchase price plus all costs to get it ready for use. If you`ve bought a property in need of work, the cost of getting it ready for use (rental) is part of the cost of the property. The total cost of the building, appliances, etc (but NOT land) can be slowly depreciated over time, but this can NOT be used to create or enhance a loss. So, from the info given, the benefit to your taxes might well be nothing (it could, however, potentially reduce an otherwise taxable profit to zero, if you`ve made money for the year after all other expenses)
This is often confused with repairs and maintenance, which are deductible and can create a loss if you have some big ones. There is surely some debate about what time frame is needed to not consider it a capital improvement, but instead a repair, but immediately after you buy it isn`t going to cut it.
There is one other thing to watch out for, and that`s a repair which also enhances the property. IE, you take out the regular, plain windows, and put in super triple pane with solar guard and argon fill. Did you repair old windows? Sure, but you also improved upon them. To what extent did they get repaired vs. improved? That would be a case by case basis and should be discussed with your accountant.
Hey all,
Long time lurker, recently actually signed up for the forums, figured I might as well post on this one.
If you`ve just bought the property and are now renovating it, ALL those costs would be considered capital and added to the cost of the property. The `capital cost` of the property is the purchase price plus all costs to get it ready for use. If you`ve bought a property in need of work, the cost of getting it ready for use (rental) is part of the cost of the property. The total cost of the building, appliances, etc (but NOT land) can be slowly depreciated over time, but this can NOT be used to create or enhance a loss. So, from the info given, the benefit to your taxes might well be nothing (it could, however, potentially reduce an otherwise taxable profit to zero, if you`ve made money for the year after all other expenses)
This is often confused with repairs and maintenance, which are deductible and can create a loss if you have some big ones. There is surely some debate about what time frame is needed to not consider it a capital improvement, but instead a repair, but immediately after you buy it isn`t going to cut it.
There is one other thing to watch out for, and that`s a repair which also enhances the property. IE, you take out the regular, plain windows, and put in super triple pane with solar guard and argon fill. Did you repair old windows? Sure, but you also improved upon them. To what extent did they get repaired vs. improved? That would be a case by case basis and should be discussed with your accountant.
Most of these investments are added to the capital cost base .. and then depreciated .. real estate (excl. land) over 25 years, furniture usually over 10.
Thus, take your net rent collected MINUS your operating costs (property taxes, utilities, management fees, ..) MINUS your interest on a mortgage .. if this is negative you may be able to declare an operating loss and co-mingle with other income to save taxes .. . if positive still deduct your depreciation, too for tax purposes .. you`re usually negative at that time and pay no taxes.
Depreciation is also called CCA (capital cost allowance)
Thus, take your net rent collected MINUS your operating costs (property taxes, utilities, management fees, ..) MINUS your interest on a mortgage .. if this is negative you may be able to declare an operating loss and co-mingle with other income to save taxes .. . if positive still deduct your depreciation, too for tax purposes .. you`re usually negative at that time and pay no taxes.
Depreciation is also called CCA (capital cost allowance)