I agree, I see little value in incorporating our rental property as business, and as such, I have not done so over the last 2+ years.

That said, if we plan to go ahead with the sale this winter or spring, hopefully all will go well.

I hope to put the equity we’ve gained, into CDN dividend-payers, likely DRIPS in a non-registered account.

On that note, I think it would be interesting to create a brief post on DRIPs, to get some more dialogue going on the subject. If done consistently, DRIPS are certainly great wealth instruments! Did you read about Carl Anderson in this month’s MoneySense Magazine??? Seems like a good role model to me!

And don’t worry, I always do my homework, but I acknowledge your need to post the usual disclaimers….

Cheers!

Yes, co ownership or not, owning a rental property is considered a business which does not need to be incorporated. In fact, I see very little value incorporating a rental business.

As well, note that you can claim what the agent charges before GST/HST.

As you know Mark, the regular disclaimers apply. I’m not a tax pro, you really should contact an accountant with your questions to verify your findings.

So did you include your agent’s commissions in your income tax filing Frugal – since in the last year, you sold your rental property??

How much (approximately) did you claim as a deduction when you sold your rental unit? I assume it was a few thousand as an expense??
(This is obviously great news!)

Does the agent’s commissions only apply if you’re “a business” – meaning I am not incorporated. Can this deduction apply if you are in a “co-ownership” (i.e., I own it with my wife?)

…After an interesting year (more downs that ups) with the rental property, I’m thinking of selling but I want to know what I’m getting into and what I can get out of it, re: income tax deductions.

Thanks for any advice and information you have FT!
Cheers!

If you sell your rental property….are your real estate agent’s/broker’s fees to sell the unit tax deductible??

[...] generate rental income, all interest charged on the mortgage is tax deductible in addition to other rental property expenses such as property/water tax, insurance and utilities (if you pay for [...]

1. I want to take advantage of the HRTC tax breaks. I understand if I’m using the property as a rental, then I can’t take advantage of it? Would it be beneficial to wait on renting, do the renos and then look for a tennant or is it more financially befeficial to get someone in there as soon as possible.

2. I’m an instructor for a local college and collect EI when I’m not working in the summer. Will the potential rental income have a negative effect on my EI claim? I’ve been told that I won’t be able to collect at all if I’m collecting rent?

Any pointers or opinions would be greatly appreciated… thanks in advance!!!

Because your net rental income (minus deductions, mortgage interest, etc) is taxed at your own personal tax rate, if it is taxed at 46% (highest marginal rate), you have much less left to pay down the mortgage than if you were lets say taxed at 31%.. That 15% difference could easily make-or-break the profitability of rental property investment.

If I don’t have a lower income spouse to ‘pass’ the rental property to take advantage of a lower marginal tax rate, what other options are there? Does doing this thru a corporation help with this problem? (I just find it hard to believe the tax system would make it prohibitive for top tax bracket individuals to invest in real estate for rental income purposes. There must be something missing).

For investment property mortgage interest is tax deductible. However, based on the scenario provided the investment is not worth it.

Even with a reasonable 25-30% mortgage downpayment on your rental property, I think you are going to need at least $1500 a month to have a reasonable 15-20 yr to having property fully paid off. So, that $700 a month is not going to cut it.

Ok, how about in the scenario where you had $400,000 lying around and bought the propert straight out without any mortgage, just looking for regular monthly cash flow. Yearly, $700 x 12 month gets you $8400/yr. That represents are mere 2.1% annual return on your investment of $400,000.

Am I missing something?

You should double check with a tax accountant.

DAvid

Thanks

[...] brushed on Capital Cost Allowance (CCA) before when discussing rental property tax deductions and the CCA schedule for the purchase of a computer in 2009.  However, as it can be a fairly [...]

Note as well that if you re-finance your rental to purchase a principal residence, the new refinanced portion will not be tax deductible. You should confirm this with a tax pro however.

I bought a 2 apartment house in St. John’s in 2004. Since then I have been renting out the basement apartment and living upstairs. I claim the income from the apartment and deduct expenses as per the CCRA requirements. Personal use is calculated at 58%, investment use is 42% base don square footage. That has been fairly simple for me so far.

I just bought a new house and I want to keep the house I bought in 2004 and rent it out on the top as well as the bottom. The value of this house has increased by 40% or $66,000 in just under 5 years. I want to do a 90% equity take out from this house and apply it to my new house mortgage. Will I have to pay capital gains tax on the proceeds of the $66,000? Any idea how much? Will I have to pay this in 2009?

Thanks,
Jason

Also, would I incur capital gains when the time comes to sell.

When you rent out the first property, keep in mind there is a tax rule that considers you to have sold the property at fair market value immediately before the change in use and re-acquired it immediately after. This change in use rule applies again when you re-acquire the property. This means that you will have a taxable capital gain in the future.

There may be some relief, but you should pay for some advice. Also see the CRA document http://www.ccra-adrc.gc.ca/E/pub/tg/t4036/README.html

I just don’t want to have to plead ignorance if/when the tax man gives me a call.

Thanks

Guy