Tax specific question

[kennyb]

A friend of mine is in a situation where they are required to pay $60k for their portion of the rain screening cost on their apartment building, in which they own a rental unit.



Big hit to them as owners but I was wondering if this amount could be used as a tax deduction on a go forward basis, reducing their taxable rental income. If anyone has any experience with how to treat this it would be apreciated.

 

[Thomas Beyer]

It is a capital item. It will be added to cost of the asset, then amortized over 25 years .. maybe the tax guy can argue ten years but that be pushing it under the tax code I'd say .. so they can use about 2200/year as an additional expense a year .. plus perhaps a higher mortgage interest .. they could refi when mortgage is due .. plus property is worth more, both on paper and in the real world.

 

[andyr]

I agree that the item is capital in nature. However, using 25 years applies under the straight-line method and generally CRA wants you to use the declining balance method. I don't see an exception here for rain-screening that would qualify for straight-line, so 25 or 10 years would not be relevant.



Assuming the building was acquired after 1987, the addition would be added to Class 1 and the amortization taken at 4% per year (2% in the first year).



So yes, the amortization can reduce the income from the rental.