If it’s your first time preparing your tax return as a rental property owner, you may have a few questions. Here’s a handy guide to common rental FAQs.
What types of expenses can I claim?
While declaring income from a rental is quite straightforward, rental expenses have some “ins and outs”. Not everything qualifies as a valid expense at tax time. Common eligible expenses include:
- The cost of advertising your rental. Many owners use free sites to find tenants, but if you placed an ad in the local newspaper, you may claim the fee paid. Also, if you pay a management company to find tenants, those payments may also be eligible.
- Expenses incurred to perform maintenance or do repairs. If you paint the premises, replace broken tiles, or have a furnace tech perform regular checkups, those costs are deductible. These types of costs are claimed as expenses on your form T776 while bigger, long-lasting expenses are claimed on a separate section of the form – Capital Cost Allowance. More on that below.
- If you own two or more rental properties, you may include vehicle expenses related to collecting rent as well as vehicle expenses relating to supervising repairs and general management of the properties.
- If you own only one rental property and do part (or all) of the repairs and maintenance yourself, you may be eligible to deduct vehicle expenses related to transporting the necessary materials and tools to your rental. You may not deduct vehicle expenses related to collecting rent.
- Other rental expenses include property taxes, legal fees, utilities, office expenses, and insurance.
What is CCA? Should I claim it?
CCA stands for Capital Cost Allowance. It’s really just depreciation. Rental property owner may claim CCA for more than just the building itself, although that’s usually the largest amount. Other common CCA items include appliances such as refrigerators and stoves.
If you’ve made an improvement to your rental property, that expense may also be considered as capital and claimed differently from a regular expense. Let’s look at an example:
- If you replace the glass in a broken wooden-framed window, the cost of the repair would be considered a regular (or current) expense. It’s a “day to day” type of expense. It doesn’t add much value and may have to be done again soon.
- If you replace the entire window with a better insulated, vinyl, double-paned unit, that expense is considered to be capital. You’ve improved the window, added value, and most likely won’t have to replace it again for a long period of time.
To claim CCA, look up the class of the item. The CCA class determines the depreciation rate of different assets. Buildings are generally class 1, 3, or 6 depending upon when you purchased it. Appliances, such as stoves, are class 8. Then it’s just a calculation of the cost of the item multiplied by the class rate. This calculation continues year after year until all the CCA is used up or you sell/replace/dispose of the item.
Other notable CCA facts:
- CCA doesn’t need to be claimed in full. It’s up to you. If your rental income was low and you had other “regular” expenses, you want to save some of the annual CCA for future years. CCA cannot increase or, on its own, make a rental loss. Don’t feel obligated to take it all if you don’t need it.
- It’s almost never a good idea to take a CCA deduction on your principal residence. If you rent out part of your home to earn extra income, avoid the temptation to claim CCA as it has serious tax consequences (capital gains) when you sell the home.
I own a home and am renting out my spare bedroom to my sister. She gives me $400/month to help cover expenses. Do I need to include this on my tax return?
Generally, no. CRA views arrangements like these as more of a cost-sharing venture. Generally, there’s no expectation for profit on your part when you rent to a family member so there’s no need to include income on your return.
TurboTax Premier helps you make the most of your rental properties. Whether you own a second home that you rent, or just rent out a single room in your house, TurboTax Premier will help you claim your expenses and get your taxes done right.