You claim rental income and expenses on Form T776. Include rent collected from tenants as rental income in the current tax year. Claim tax deductions for any expenses related to your rental property. Common rental property expenses include home insurance, heat, hydro, water, and mortgage insurance. Claim the full amount of expenses if it is for a rental property, but only a percentage if it is for part of your principal residence.

Rental property income tax

Current or capital expenses

Some expenses can be deducted in full if it is spent to maintain the rental property, these expenses are called current expenses. for example, if you spend money to restore your property to its original condition, these expenses can be deducted in full. Other expenses which enhance the value of the property and has a long-lasting life has to be added to the value of the rental property and claim a capital cost allowance on them over the business years, these expenses are called capital expenses. for example, if you upgraded the floors from carpet to hardwood to increase the value of your property, the expenses have to be added to the value of the property and depreciated in time. For a better understanding of the differences between current or capital expenses, visit this TurboTax link.

Home Insurance

Deduct property insurance premiums paid towards coverage on your rental property. Deduct only the current year’s coverage, even if your premiums provide coverage for over a year. Deduct the remaining premiums in the year they provide insurance coverage for. Claim the full amount if you are renting out a separate property or only a portion of it is part of your principal residence. If you paid $2,000 a year in insurance premiums for your rental property, you could claim the full amount on your tax return as long as the rental property is not your principal residence.

Advertising

Claim a tax deduction for fees paid towards advertising your rental property. Newspapers, websites, and trade publications are all good places to advertise and claim a tax deduction. Unlike property insurance and utilities, claim the full amount of advertising since it relates fully to your rental property. If you spend $500 to advertise your vacant apartment in the newspaper for a month, you can claim the full amount as an advertising expense on your tax return.

Interest and Bank Charges

Deduct mortgage interest or loan interests you borrow to finance the purchase of your rental property or to improve the property. Do not claim a tax deduction for mortgage principal. Deduct funds borrowed to help finance improvements to your home. Only claim a deduction for soft costs. The Canada Revenue Agency defines soft costs as funds you borrow for construction, renovations, and upgrades to your rental suite to make it more suitable.

Also deduct fees related to obtaining your mortgages, such as the mortgage application, appraisal, and legal fees paid to your real estate lawyer. If you paid $2,000 to your real estate lawyer for closing costs, claim it on your tax return to help offset your rental income.

Property Taxes

Property taxes are determined by your province and collected by your municipality. Deduct property taxes paid to your municipality in the current year. Claim only the portion that relates to your rental property. For example, if you paid $3,000 in property taxes on your principal residence and you rent out your basement apartment (representing 40 percent of the square footage of your home), claim $1,200 on your tax return.

Utilities

Utilities are a major expense for landlords. You can claim a tax deduction for the portion of utilities related to your rental property or suite. Claim the full amount if you rent out the full property, or claim a portion if you rent out a suite in your principal residence. Deduct the following utilities related to your property, if you pay for them: heat, hydro, water, and cable.

Office Expenses

Office expenses are pens, pencils, paper clips, stationery, etc. you cannot deduct capital expenses such as office equipment: computers, printers, chairs, desks, etc. Capital expenses should be claimed as  CCA.

Repairs and Maintenance

You can deduct the cost of repairs in your rental property including labour. The expenses have to be current expenses such as repairing the property to the original condition not improving the value of the property. You cannot deduct a value for your own labour.

Salaries and Management Fees

You can deduct amounts paid to your employees. you cannot deduct a salary for yourself. If you are an employer, you should deduct your contributions to the CPP and EI plans. You can also deduct amounts paid to a third party to manage your property and amounts paid to a realtor to sell your property.

Travel

If your rental property is in another municipality, you can deduct travel expenses you paid to collect the rent or to maintain the property. You can only deduct expenses related to your rental property but not boarding and lodging.

TurboTax software offers an easy step-by-step process to claim your rental income and expenses. The software helps you fill the T776 form with your income tax return. Consider TurboTax Live Assist & Review if you need further guidance, and get unlimited help and advice as you do your taxes, plus a final review before you file. Or, choose TurboTax Live Full Service* and have one of our tax experts do your return from start to finish.

*TurboTax Live™ Full Service is not available in Quebec.