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Tax return question, Principal paydown as income?

LillianHo

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I have a joint venture rent to own property with someone in Alberta. This is the first year for the tax report on this property. He said he will send me a form T776, including the portion of money he paid me every month as income plus the portion of principal pay down as income. I don't understand the principal pay down as income. I thought we report the gross income and deduct the interests and other expenses. Please help!
 

Sherilynn

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You are correct in that the principle paydown itself is not income. The gross rent (plus option payments, potentially) less deductible expenses is net income.



Remember that when you sell an RTO property, the proceeds from sale are income and not capital gains (unless the property had been a regular rental for a while and this is simply your exit strategy).
 

Sherilynn

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[quote user=Sherilynn]Remember that when you sell an RTO property, the proceeds from sale are income and not capital gains (unless the property had been a regular rental for a while and this is simply your exit strategy).


For this reason, and because of the short term nature of RTO's, I do not depreciate RTO properties to zero out income. I prefer to have the income split over a couple of years rather than get hit with a big tax bill upon sale. However, your situation could be different so you should consult your accountant.
 

LillianHo

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Thank you very much Sherilynn for your info. It is very helpful since this is the first RTO I have.
 
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