Key Takeaways
- If you own a rental property, you can deduct certain expenses from your rental income to reduce your taxable income and save money on taxes.
- These expenses include depreciation, mortgage interest, property taxes, insurance, repairs, maintenance, utilities, advertising, professional fees, and more.
- You can use Form T776, Statement of Real Estate Rentals, to calculate and report your rental income and expenses on your tax return.
- You must keep accurate records of your income and expenses, and follow the CRA’s rules and guidelines for rental property owners.
Introduction
Hello, Hustlers! Do you want to know how to save money on taxes by deducting your rental property expenses? If so, you’re in the right place. In this article, we will explain what expenses you can deduct from your rental income, how to calculate and report them on your tax return, and what records you need to keep. We will also provide some tips and resources to help you optimize your tax deductions and avoid penalties and interest.
What is Rental Income and Expenses?
Rental income is the money or value you receive for renting out a property that you own, such as a house, apartment, or condo. Rental income includes rent payments, security deposits, expenses paid by tenants, and other income related to your rental property.
Rental expenses are the costs you incur to earn rental income, such as depreciation, mortgage interest, property taxes, insurance, repairs, maintenance, utilities, advertising, professional fees, and more.
You must report your rental income and expenses on your tax return, and pay taxes on your net income, which is the difference between your income and expenses. By deducting your rental expenses, you can reduce your taxable income and save money on taxes.
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What Expenses Can You Deduct from Your Rental Income?
You can deduct any reasonable and necessary expenses that are related to earning rental income, as long as you have receipts or other documents to support them. Here are some of the common expenses that you can deduct from your rental income:
- Depreciation – You can claim a portion of the cost of your rental property and its improvements as a capital cost allowance (CCA) each year. This is an allowance for the wear and tear of the property over time. You can use Form T776, Statement of Real Estate Rentals, to calculate and claim CCA.
- Mortgage interest – You can deduct the interest portion of your mortgage payments, as long as the mortgage is used to buy or improve your rental property. You cannot deduct the principal portion of your mortgage payments.
- Property taxes – You can deduct the property taxes you pay on your rental property for the period it is available for rent.
- Insurance – You can deduct the insurance premiums you pay on your rental property for the period it is available for rent.
- Repairs and maintenance – You can deduct the cost of repairs and maintenance that are necessary to keep your rental property in good condition and habitable. You cannot deduct the cost of improvements that increase the value or change the use of the property.
- Utilities – You can deduct the cost of utilities, such as electricity, gas, water, and garbage collection, that you pay for your rental property, unless they are included in the rent or paid by the tenant.
- Advertising – You can deduct the cost of advertising your rental property, such as online ads, newspaper ads, flyers, signs, or banners.
- Professional fees – You can deduct the fees you pay to professionals, such as accountants, lawyers, or property managers, for services related to your rental property.
- Other expenses – You can deduct other expenses that are related to earning rental income, such as travel, office expenses, salaries, and wages.
You cannot deduct personal expenses, such as mortgage principal, land transfer taxes, homeowner’s association fees, or the value of your own labour.
How to Report Your Rental Income and Expenses on Your Tax Return?
You can use Form T776, Statement of Real Estate Rentals, to calculate and report your rental income and expenses on your tax return. You can find this form on the CRA website. You will need to provide the following information on the form:
- Identification – You will need to enter your name, social insurance number, address, and the address of your rental property.
- Details of other co-owners and partners – If you own the rental property with other individuals or as part of a partnership, you will need to enter their names, social insurance numbers, and shares of ownership or partnership.
- Income – You will need to enter the total amount of rental income you received or are entitled to receive for the year. This includes rent payments, security deposits, expenses paid by tenants, and other income related to your rental property.
- Expenses – You will need to enter the total amount of expenses you paid or are entitled to pay for the year. This includes depreciation, mortgage interest, property taxes, insurance, repairs, and other expenses related to your rental property.
- Net income or loss – You will need to subtract your total expenses from your total income to get your net income or loss from your rental property. This amount will be reported on line 12600 of your income tax and benefit return.
What Records Do You Need to Keep for Your Rental Property?
You must keep accurate records of your rental income and expenses for at least six years from the end of the tax year to which they relate. These records include:
- Receipts, invoices, cancelled cheques, bank statements, and credit card statements for your income and expenses
- Rental agreements, leases, or contracts for your rental property
- Mortgage statements, property tax bills, and insurance policies for your rental property
- Form T776, Statement of Real Estate Rentals, and supporting schedules for your rental income and expenses
- Form T2125, Statement of Business or Professional Activities, if you provide substantial services to your tenants or rent personal property
- Form T2091, Designation of a Property as a Principal Residence by an Individual (Other Than a Personal Trust), if you sell your rental property or change its use
You must keep your records in a safe and accessible place, either in paper or electronic format. You must also make them available to the CRA if they request them for review or audit.
Conclusion
Owning a rental property can be a great source of income, but it also comes with tax obligations and responsibilities. You must report your rental income and expenses on your tax return, and pay taxes on your net income. You can deduct your rental expenses from your income to reduce your taxable income and save money on taxes. You can use Form T776, Statement of Real Estate Rentals, to calculate and report your rental income and expenses. You must also keep accurate records of your income and expenses, and follow the CRA’s rules and guidelines for rental property owners. By following these tips, you can optimize your tax deductions and avoid penalties and interest. Happy renting, Hustlers!