The decision to become a property owner is not one to be taken lightly. Although assets such as stocks and bonds are sometimes referred to as passive, the active investment is known to be a rental property. You have to be able to get up at 3 a.m. if you rent out a suite in your building. To patch a leaky pipe for the homeowner, or to pay someone else to do it. If you rent your principal residence while living somewhere else temporarily, you will need to consider hiring a manager of the property. Here are some tax tips to help make your travel a lot easier as a landlord.
You can claim Tax Deductions
One of the advantages of being a landlord is being able to claim tax deductions against your rental property. The laundry list of expenditures you can report is from the Revenue Department. The more costs you report, the more taxes you'll be able to reduce. Although you can absolutely deduct certain expenses like ads, other expenses are deducted based on the percentage of the rented out of your house.
Some landlords cannot deduct mortgage interest paid on their principal residence, unlike U.S. citizens. When you rent out part of your home, the only exception is. And you can claim a percentage of the interest as a tax deduction if you have a mortgage. For example, you can claim a tax deduction for 40 percent of your mortgage interest you paid in the year if you rent out 40 percent of your house.
Designate your Primary Residence
Before you decide to rent your home, it is important to consider the different tax implications depending on whether you rent out your main residence or investment property on your own. You may like to also view some for sale or rent by owner reviews. If you're renting your house for part of the year, you can still call it your main residence as long as you've been living there for a while throughout the year.
Even though you can only designate one property per tax year as your principal residence, you don't have to call the same home every year. If you've rented your house for a part of the year, when you move back in you can name it as your main residence. Just keep in mind that when you sell your home, you will have to pay capital gains for the period when it wasn't your principal residence.
Claiming an allowance on capital costs
You have the ability to amortize the house at 4 percent a year by renting your house.
This is a chance for you to cut your rental income and pay less tax. The downside is that if your house has appreciated the value when it is sold, the difference between the selling price and the original purchase price will be a recovery of the full amount of amortization already claimed plus capital gains. This could result in a large owing of taxes.
When you rent your principal home, you have the option to demand an allowance for capital costs. By not claiming CCA on your house, you won't earn tax deductions for capital (long-lasting) expenses when you're living there or renting your house temporarily, so when you want to sell, you won't get a big tax bill from a recapture.
Stay organized and keep records
It is important that you keep good records when you're a landlord. You'll not only want to keep records of the rent you receive, but you'll also want to claim any expenses you incur on your rental property. According to the CRA, landlords and self-employed persons are more likely to be audited than salaried employees. It's important to have all of your spending receipts, otherwise, your tax deductions could be disallowed and you might face expensive penalties and interest. See also: for sale or rent by owner reviews.
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