Owning a Rental Property With a Spouse

“In most cases, when a couple has rental property, their ownership position is as co-owners,” says Kitchener, Ontario accountant Stewart Howe. “The most likely partnership condition a couple might meet is the size of the rental business.”

If co-owning a property with a partner, it is important to understand the possible credits and deductions. There are specific expense deductions allowed to landlords. TurboTax can assist you throughout the filing process and help determine the deductions that are allowed you.

If you’re a co-owner, you must determine if a partnership exists. Co-ownership in itself doesn’t constitute a partnership, so check applicable laws for your territory or province, or consult CRA. If you’re in this category, you may have to file a slip T5013 (Statement of Partnership Income), depending on income and assets. Note that whether you’re a co-owner or a partner, you must list your personal portion of all expenses for every co-owner or partner.

The services you provide as part of your rental income don’t affect co-ownership, but they do affect how you and your spouse report income earned from a rental property. If you provide only basic services in your rental, such as heat, light, parking and laundry facilities, you have rental income. When services expand beyond that, such as cleaning services, meals or security, you’re operating a business of which the rental is just a part. Generally, the more services you add for your tenant, the more likely the Canada Revenue Agency would regard your rental as a business.

As you and your spouse approach tax time, classifying expenses on your rental property is important. Money you spend on maintaining the business and property falls into two broad categories: current and capital expenses.

The quickest way to identify an expense is to consider its impact. Current expenses are “now” things that may happen frequently, such as painting a house. Capital expenses improve the value of a house over the long-term, such as adding vinyl siding. Current expenses are a cost of earning rental income, and these can be deducted annually. Capital expenses usually add lasting value to the property, so the costs of these is amortized over several years. A number of factors, such as when you acquired your property, determine the Capital Cost Allowance (CCA), or depreciation, amount you’re entitled to, so check the CRA website for these categories.

When you rent out a portion of the house in which you live, the CRA may consider that you have changed the use of your house. This is not an issue if the rental space is a small part of the house, no structural changes are required to make the rental unit and you don’t depreciate the rental portion of the building as a business expense. There are even certain tax advantages attached to your principal residence when it’s time to sell. Meeting the conditions above show you are an average homeowner trying to ease the cost of housing. But if you rent part of the house where you live, you can only claim the amount of expenses related to the rental portion of the building.