Real estate investment is a great way to diversify your investment portfolio. You can utilize the property for rental income or just hold it till the time its value increases considerably.
Real estate investors, who own a rental property can claim a variety of tax deductions. Apart from deducting their rental expenses against their rental income, they can also claim Capital Cost Allowance (CCA) or depreciation.It is important that the investors keep receipts and invoices in order to maximize the tax deductions. Some of the tax deductions a real estate investor can avail are:
1. Current and Capital Expenses
The amount you spend on maintaining the property are called the current expenses. These expenses can be deducted in full. Any money spent to restore the property to its original condition, which may include repainting, landscaping or paving a driveway can be deducted in full.
The expenses which have lasting effect spanning years such as new windows or a new roof are called capital expenses. These expenditures enhance the value of property and has to the added to the property value. The investor can claim a capital cost allowance on them. So, expenditure on new windows can be added to the property value and depreciated in time.
2. Home Insurance
The property insurance premiums that you pay towards coverage of your real estate investment can be deducted. You can claim the full amount on your tax return as long as the property is not your principal residence. Even if you have multiple properties, which are used for rental income only, the home insurance of all these rental properties is tax-deductible.
3. Interest and Bank Charges
You may deduct interest on money you borrow for purchasing or improving the property. You cannot claim a deduction on the principal amount. You can also You can also deduct interest charges you paid to your tenants on rental deposits.
Moreover, you can deduct the fees when you get a loan or mortgage to buy or improve your rental property. These fees
include mortgage guarantee fees, mortgage applications, processing, appraisals, and insurance fees; mortgage brokerage fees and legal fees related to mortgage financing.
4. Renovation & Home Improvements
In case your have borrowed funds to finance improvements to your rental property, you can only claim a tax deduction for soft costs. These include funds borrowed for construction, upgrades and renovations to the rental property to make it more suitable.
5. Property Taxes
Property taxes are calculated using the assessed value of your property and the property tax rate of your region or municipality. You can deduct property taxes paid (only the portion that relates to your rental property) in the current year. Find out how property tax is calculated and Canadian cities with highest and lowest property taxes!
6. Utilities
If you rent out your full property, you can claim the full amount you spent on utilities. If you pay for heat, water, cable or hydro in your rental property, you can deduct the expenses in your tax return.
7. Depreciation
It is a good idea to depreciate your appliances and the like as they you may have to replace them at some point in future. If you have recently installed new fixtures and fittings in your old property, you may be able to get significant depreciation benefits.
8. Office Expenses
You can deduct expenses such as pens, papers, stationery and the like. However, you cannot claim capital expenses such as furniture, computers, printers etc.
9. Repairs and Maintenance
Cost for repairs carried out in your rental property including the labor costs can be deducted. Again, you can deduct only the current expenses that help restore the property to its original condition.
10. Professional Fees
All professional fees such as legal fees, accountant fees, property inspections, appraisals can be deducted.
11. Travel
If you incur any expenses for travelling to your rental property for maintaining the property or collecting rent, you can deduct the travel expenses. If you travel by your vehicle, you can either use the mileage rate or calculate all the expenses incurred, such as gas, repair, and maintenance. You can also deduct other expenses such as tolls, parking fees, interest on your car loan, license costs, applicable registration fees, and other similar costs.
12. Salaries
Any amount paid to the employees can be deducted, but you cannot deduct a salary for yourself.
13. Rental Property Management Fees
The fees that you pay to your rental property management company are all tax deductible. Any amount paid to the realtor can also be deducted.
14. Real Estate Advertising
If you advertise your rental property in newspapers, magazines, rental websites, or other similar places, you can claim a tax deduction for all the fees you paid for it. You can claim all the advertising expenses because all of them are directly related to your rental property.
If you need any more information on getting the most from your real estate investment, get in touch with the experts at your local rental property management company or contact us!.
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LEASEWELL is a premier property services company in Calgary. We help landlords with property management of their rental property more profitably and hassle free way. Let us help you market your rental property to match with great tenants and keep your rental in top shape to maximize return on your rental property investment. For more please visit our website www.leasewell.ca or contact us at info@leasewell.ca