Saving rental taxes have become an important concern as people find a lot of their income eroded. While paying taxes in Canada. If you are unsure of how this can be done, search tax accountant near me to get in touch with a tax accountant who might be able to help.
Before you do that, read the following tax-saving tips from a tax accountant.
Advertising
If you advertise your rental property in magazines, newspapers, websites, and other similar places, go ahead and claim a tax deduction on all payments you have made for it. You spend all advertising expenses because they are all directly related to your property.
Interest
There are many costs you can charge in terms of interest.
At the top of the list is the interest on the mortgage you borrowed to finance the purchase of your rental property. Be sure to list all the costs charged when you get a home loan, such as legal fees, mortgage application, quote, etc. Skip the mortgage capital for the property because it is not deductible.
You can also deduct the funds you have borrowed to finance the improvement of your property. However, these must be subsidized costs, which the CRA defines as the funds you borrow to finance your leased property’s construction, modernization, and renovation to increase its value or make it more suitable for renting.
Professional fees (including legal and accounting fees)
Compensation due for hiring different professionals to work for you is also deductible. Examples include property management, legal fees (for preparing leases, debt collection, etc.), accounting expenses (for bookkeeping, auditing, budgeting, etc.) and consulting fees. Generally, you can deduct property management and other expenses incurred in connection with the operation of your rental property.
Repairs, maintenance, and improvements
Ordinary repairs and maintenance, such as the cost of repairing broken doors or windows, painting, etc., are calculated as ongoing expenses and can therefore be deducted in the year in which they are spent. Repair and maintenance costs can be a significant ongoing expense on your tax return.
Management and administration expenses
This category includes the amounts you have paid to companies or individuals to manage your Toronto rental property. Other payments that fall into this category include what you have paid or have to pay to real estate agents to find new tenants or collect rents.
Whether you hire a property management company to manage your property or an accountant who will work to organize your property’s rental books, these property management fees are all deductible expenses.
Costs for motor vehicles
The cost of motor vehicles is deducted based on the amount of property you own. For example, if you own a rental property, you can deduct specific motor vehicle expenses, but only if certain conditions are met.
Insurance
Is your rental property insured? Have you paid home insurance premiums to cover your rental property? If your answer to both questions is yes, you can deduct how much you spent on building or home insurance during the year. However, it is necessary to limit the deduction to cover expenses incurred during the current year. If your premiums offer coverage for more than one year, you can only reduce your expenses in the current year for which they offer coverage.
Office expenses
As the name suggests, office expenses include the cost of purchasing items such as pens, paper, pencils, stamps, stationery, and the like. These charges can only be claimed if the purchases were made solely for commercial purposes. Items purchased for personal use are personal expenses and cannot be deducted.
Property tax
Your province will determine how much you will pay in taxes, and then your municipality will collect this amount. Tax rules allow for the deduction of real estate taxes charged by the municipality in the current financial year. Remember to claim only the part directly related to your leased property. For example, if you have a main residence plus a basement apartment that you rent, you can request a percentage of the amount that corresponds to the surface area occupied by the rental unit.
Frequently Asked Questions
What kind of legal expenses cannot be used for tax exemption purposes?
Legal fees incurred to purchase a rental property cannot be deducted from gross rental income. Such fee is divided between building and land and then added to the specific costs of belonging.
What kind of improvements can help me save tax on rental property?
On the other hand, improvements, especially those affecting corporate assets, should be capitalized if:
- They increase the value of the real estate concern
- Significantly increase the amount of time the asset can be used
- Adapt the resource to a completely different use
The improvement mainly concerns properties and is largely perceived as an added value to your leased property. These can be new electrical wiring, lighting, plumbing work you’ve built, or a project to remodel your business equipment.
Can I claim tax exemption for the entire time I owned the property?
You can only apply property tax for the period when the rental unit has actually been rented or is available for rent. If you haven’t converted your basement into a rental unit within six months of the year, you can only deduct property tax for the remaining six months.
Can you deduct rental costs if you don’t have rental income?
In some cases, it is possible to deduct rental costs if you do not have rental income or if you experience a rental loss. A rental loss occurs when the rental costs are higher than the gross rental income. The rent loss will then be claimed against your other sources of income, but you may need to check this when accounting for your income and expenses.
Can you deduct rental costs if you don’t have rental income?
In some cases, it is possible to deduct rental costs if you do not have rental income or if you experience a rental loss. A rental loss occurs when the rental costs are higher than the gross rental income. The rent loss will then be claimed against your other sources of income, but you may need to check this when accounting for your income and expenses.
However, keep in mind that these deductions can only be made when the property is empty but available for rent.
Conclusion
When making a note of these deductible rental property expenses, it would also be nice to look into your income and expenses, which the agency says you cannot deduct from your rental property income. Specifically, this list includes:
- Penalty
- Land transfer tax
- The value of your work… and more!