I was wondering when you rent out the basement suite in your primary residence how do you calculate how much money you should be paying taxes on? Can you use 1/2 your mortgage payment as a write off? I want to become a LL so I am sorry if my question seems elementary. Any help would be appreciated.
Paying Taxes On Basement Suite In Primary Residence
- Thread starter aiden1983
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QUOTE (aiden1983 @ Feb 25 2010, 09:35 AM)
I was wondering when you rent out the basement suite in your primary residence how do you calculate how much money you should be paying taxes on? Can you use 1/2 your mortgage payment as a write off? I want to become a LL so I am sorry if my question seems elementary. Any help would be appreciated.
Figure out the percentage of floor space of the suite and the common area (ie-laundry, storage) that the tenant has access to as compared to the total floor space of your house. This is the percentage of mortgage interest you can write off. Don't forget other expenses (property taxes, utilities, insurance) you can use the percentage for as well.
I was wondering when you rent out the basement suite in your primary residence how do you calculate how much money you should be paying taxes on? Can you use 1/2 your mortgage payment as a write off? I want to become a LL so I am sorry if my question seems elementary. Any help would be appreciated.
Figure out the percentage of floor space of the suite and the common area (ie-laundry, storage) that the tenant has access to as compared to the total floor space of your house. This is the percentage of mortgage interest you can write off. Don't forget other expenses (property taxes, utilities, insurance) you can use the percentage for as well.
QUOTE (HeatherBrandt @ Feb 25 2010, 10:25 AM)
Figure out the percentage of floor space of the suite and the common area (ie-laundry, storage) that the tenant has access to as compared to the total floor space of your house. This is the percentage of mortgage interest you can write off. Don't forget other expenses (property taxes, utilities, insurance) you can use the percentage for as well.
So I can write off the % of interest of the mortgage, the utilities, property taxes, and insurance. But can you write off wear and tear on the unit? Any other items you suggest I would be able to claim? The remainder of the cash flow do I just claim as personal income and pay my tax rate on it? Thank you very much for your help.
Figure out the percentage of floor space of the suite and the common area (ie-laundry, storage) that the tenant has access to as compared to the total floor space of your house. This is the percentage of mortgage interest you can write off. Don't forget other expenses (property taxes, utilities, insurance) you can use the percentage for as well.
So I can write off the % of interest of the mortgage, the utilities, property taxes, and insurance. But can you write off wear and tear on the unit? Any other items you suggest I would be able to claim? The remainder of the cash flow do I just claim as personal income and pay my tax rate on it? Thank you very much for your help.
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The tenant has to receive a benefit from any expenses claimed. You must also decide if the expense is maintenance or an upgrade (ie current expense or capital).
Your best best to start is to go to a tax office or online and get the booklet from CRA on rental property income.
Your best best to start is to go to a tax office or online and get the booklet from CRA on rental property income.
QUOTE (HeatherBrandt @ Feb 25 2010, 11:18 AM)
The tenant has to receive a benefit from any expenses claimed. You must also decide if the expense is maintenance or an upgrade (ie current expense or capital).
Your best best to start is to go to a tax office or online and get the booklet from CRA on rental property income.
Thanks I will look into the CRA booklet on rental property
The tenant has to receive a benefit from any expenses claimed. You must also decide if the expense is maintenance or an upgrade (ie current expense or capital).
Your best best to start is to go to a tax office or online and get the booklet from CRA on rental property income.
Thanks I will look into the CRA booklet on rental property
QUOTE (aiden1983 @ Feb 25 2010, 12:35 PM)
I was wondering when you rent out the basement suite in your primary residence how do you calculate how much money you should be paying taxes on? Can you use 1/2 your mortgage payment as a write off? I want to become a LL so I am sorry if my question seems elementary. Any help would be appreciated.
Comments posted so far are great. I am in the same situation. My suite takes 30% of my floor space. Therefore 30% of my mortgage interest is tax deductible, as well as 30% of my house insurance and 30% of my property taxes. I claim the full rent amount as annual income ($700 per month times 12). I pay the power bill so I claim 100% of that. I chose not to claim capital cost allowance, the 'cost' of which will be that I will have to pay capital gains tax when I sell (I think I have these term correct).
I was wondering when you rent out the basement suite in your primary residence how do you calculate how much money you should be paying taxes on? Can you use 1/2 your mortgage payment as a write off? I want to become a LL so I am sorry if my question seems elementary. Any help would be appreciated.
Comments posted so far are great. I am in the same situation. My suite takes 30% of my floor space. Therefore 30% of my mortgage interest is tax deductible, as well as 30% of my house insurance and 30% of my property taxes. I claim the full rent amount as annual income ($700 per month times 12). I pay the power bill so I claim 100% of that. I chose not to claim capital cost allowance, the 'cost' of which will be that I will have to pay capital gains tax when I sell (I think I have these term correct).
QUOTE (Tootse @ Feb 25 2010, 01:52 PM)
Comments posted so far are great. I am in the same situation. My suite takes 30% of my floor space. Therefore 30% of my mortgage interest is tax deductible, as well as 30% of my house insurance and 30% of my property taxes. I claim the full rent amount as annual income ($700 per month times 12). I pay the power bill so I claim 100% of that. I chose not to claim capital cost allowance, the 'cost' of which will be that I will have to pay capital gains tax when I sell (I think I have these term correct).
Do you claim 30% off all of the interest or is it 30% of the interest on just the building not the land?
Comments posted so far are great. I am in the same situation. My suite takes 30% of my floor space. Therefore 30% of my mortgage interest is tax deductible, as well as 30% of my house insurance and 30% of my property taxes. I claim the full rent amount as annual income ($700 per month times 12). I pay the power bill so I claim 100% of that. I chose not to claim capital cost allowance, the 'cost' of which will be that I will have to pay capital gains tax when I sell (I think I have these term correct).
Do you claim 30% off all of the interest or is it 30% of the interest on just the building not the land?
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QUOTE (aiden1983 @ Feb 25 2010, 03:57 PM)
Do you claim 30% off all of the interest or is it 30% of the interest on just the building not the land?
You can write off 30% of the interest expense. Period.
The attribution of value to land vs. building only comes into play for CCA (depreciation for the elderly
).
Simplified Example:
Purchase a duplex for 225,000, 25,000 down, 200,000 financed at 5% on January 1st.
Have the agent write and assessment of the value of the land vs. the property in that location. Say 180,000 for building and 45,000.
Over the year, you pay 15,000 in mortgage payments, 10,000 in interest, 5,000 in principle paydown.
For the sake of CCA, which is 4% (after the first year, 2% in the first year but we will ignore that here) you will get a 7,200 deduction (180k * 4%) on the building ONLY.
For the interest you paid, you will have a 10,000 deduction.
The principle paydown in this isolated example does not come into play as it is actually a portion of the net income you derived from rent minus interest that you were forced to put into a savings account called equity that has now grown from 25,000 to 30,000.
Simplified example but I hope it makes it clearer.
EDIT: Sorry, forgot to mention. With CCA you actually cannot use the full 4% if it results in a loss. You can only claim the amount up to the point your taxable income from the rental property becomes zero.
Can someone clarify for me is that is zero across all your rentals as a whole or on a per property basis?
Mike
Do you claim 30% off all of the interest or is it 30% of the interest on just the building not the land?
You can write off 30% of the interest expense. Period.
The attribution of value to land vs. building only comes into play for CCA (depreciation for the elderly
Simplified Example:
Purchase a duplex for 225,000, 25,000 down, 200,000 financed at 5% on January 1st.
Have the agent write and assessment of the value of the land vs. the property in that location. Say 180,000 for building and 45,000.
Over the year, you pay 15,000 in mortgage payments, 10,000 in interest, 5,000 in principle paydown.
For the sake of CCA, which is 4% (after the first year, 2% in the first year but we will ignore that here) you will get a 7,200 deduction (180k * 4%) on the building ONLY.
For the interest you paid, you will have a 10,000 deduction.
The principle paydown in this isolated example does not come into play as it is actually a portion of the net income you derived from rent minus interest that you were forced to put into a savings account called equity that has now grown from 25,000 to 30,000.
Simplified example but I hope it makes it clearer.
EDIT: Sorry, forgot to mention. With CCA you actually cannot use the full 4% if it results in a loss. You can only claim the amount up to the point your taxable income from the rental property becomes zero.
Can someone clarify for me is that is zero across all your rentals as a whole or on a per property basis?
Mike
QUOTE (MikeMcC874 @ Feb 25 2010, 02:51 PM)
You can write off 30% of the interest expense. Period.
The attribution of value to land vs. building only comes into play for CCA (depreciation for the elderly
).
Simplified Example:
Purchase a duplex for 225,000, 25,000 down, 200,000 financed at 5% on January 1st.
Have the agent write and assessment of the value of the land vs. the property in that location. Say 180,000 for building and 45,000.
Over the year, you pay 15,000 in mortgage payments, 10,000 in interest, 5,000 in principle paydown.
For the sake of CCA, which is 4% (after the first year, 2% in the first year but we will ignore that here) you will get a 7,200 deduction (180k * 4%) on the building ONLY.
For the interest you paid, you will have a 10,000 deduction.
The principle paydown in this isolated example does not come into play as it is actually a portion of the net income you derived from rent minus interest that you were forced to put into a savings account called equity that has now grown from 25,000 to 30,000.
Simplified example but I hope it makes it clearer.
Mike
That was a great example for me
. Would you know what happens if you were to use a LOC for the down payment? Can you claim the interest on that also? Thanks so much for the help.
You can write off 30% of the interest expense. Period.
The attribution of value to land vs. building only comes into play for CCA (depreciation for the elderly
Simplified Example:
Purchase a duplex for 225,000, 25,000 down, 200,000 financed at 5% on January 1st.
Have the agent write and assessment of the value of the land vs. the property in that location. Say 180,000 for building and 45,000.
Over the year, you pay 15,000 in mortgage payments, 10,000 in interest, 5,000 in principle paydown.
For the sake of CCA, which is 4% (after the first year, 2% in the first year but we will ignore that here) you will get a 7,200 deduction (180k * 4%) on the building ONLY.
For the interest you paid, you will have a 10,000 deduction.
The principle paydown in this isolated example does not come into play as it is actually a portion of the net income you derived from rent minus interest that you were forced to put into a savings account called equity that has now grown from 25,000 to 30,000.
Simplified example but I hope it makes it clearer.
Mike
That was a great example for me
QUOTE (Tootse @ Feb 25 2010, 03:52 PM)
I pay the power bill so I claim 100% of that.
Huh?
You get to claim 30% of all your house related expenses.
100% of rental expenses (advertising, painting the unit, damage repair to the unit etc.)
Regarding CCA.
Why would anyone do that on a PR and mess will capital gains?
Maybe if the rental income was huge?
If I remember correctly, there is a term "rent recovery" whereby you apply the rent from PR directly against house expenses rather than claiming it as income.
I pay the power bill so I claim 100% of that.
Huh?
You get to claim 30% of all your house related expenses.
100% of rental expenses (advertising, painting the unit, damage repair to the unit etc.)
Regarding CCA.
Why would anyone do that on a PR and mess will capital gains?
Maybe if the rental income was huge?
If I remember correctly, there is a term "rent recovery" whereby you apply the rent from PR directly against house expenses rather than claiming it as income.
QUOTE (housedoc @ Feb 26 2010, 06:58 AM)
Huh?
You get to claim 30% of all your house related expenses.
100% of rental expenses (advertising, painting the unit, damage repair to the unit etc.)
I pay the power bill for the unit because it has a seperate power meter from my main house. Should I not claim it as an expense? 100% of it?
Huh?
You get to claim 30% of all your house related expenses.
100% of rental expenses (advertising, painting the unit, damage repair to the unit etc.)
I pay the power bill for the unit because it has a seperate power meter from my main house. Should I not claim it as an expense? 100% of it?