You have a combination of a rental loss and a capital loss. You only used the property as a rental property, so you can subtract the operating expenses from the rent to get a rental loss to claim on your personal return.

Then you can claim a capital loss based on the difference between the total cost to buy and the net proceeds of sale. In both cases, include all buying and selling costs.

For these kinds of transactions, you should probably use an accountant. The issues can involve some judgment and there are significant dollar values.

Ed

Can the total I pay each month be written off at tax time?

Thanks

Do your questions sound reasonable to you? These types of questions can’t be definitively answered without knowing all the details, but the short answer is that they must be reasonable.

We see this relatively often with rental property owners thinking they are big-time operations trying to claim all kinds of expenses or thinking they are a business, and using that to stretch every possible expense far beyond reasonable.

Claiming a wage for a spouse for minor jobs in only a couple of rentals would be difficult to be considered reasonable. Is the rent enough that it would be reasonable to pay someone to collect it? Remember also that if he pays you a wage, you must pay both employer and employee shares of CPP on it.

What does “more than regular services” mean, Bonnie? I’ve been trying to think what exactly you might mean, but my mind keeps wandering into fantasies. :)

Again, having a business that only involves collecting rent and some miscellaneous services for 2 rentals doesn’t seem like a real business. If your business has only one client who is your spouse, it can be seen as a sham.

Any business needs to have a reasonable expectation of profit, so if you are not showing a profit or significant moves towards a profit by year 2 or 3, then entire business can be disallowed. CRA does monitor business to make sure they are not a sham.

Have you discussed this with your accountant or your financial advisor? Instead of trying to claim extreme expenses, there may be some planning opportunities. For example, if your husband is the higher income earner, why is he the owner of the properties and not you?

If you are trying so hard to stretch expenses, is that because the properties are not very profitable or because you are paying too much tax on them?

If the properties are not making making much money, perhaps you should consider whether they are profitable enough to keep. Most of the people we have seen with rental properties have negative cash flow.

If the properties cost too much tax, that is common once the mortgage is paid down. That is why it is often best to never pay much down on your mortgage. Some planning may be necessary. For example, using your equity to invest in tax efficient investments, such as tax efficient mutual funds, can provide tax deductions to offset the highly-taxed rent income.

We have some clients with multiple rentals doing the Smith Manoeuvre on all their rentals. This has some significant benefits, such as providing some useful tax deductions and higher growth potential, and can be a good diversification.

I’ve been around long enough to see a lot of real estate millionaires go bankrupt. Real estate usually makes a low return unless there are large mortgages. In the early 90s when real estate values fell over 30% and rents dropped similarly, many real estate millionaires with multiple properties found themselves over-leveraged and lost everything. They were also not diversified and did not have much in other assets that could have sustained them, since the stock and bond markets made decent returns while real estate values plummeted.

I’m reading between the lines that there are deeper issues here. Without knowing what your issues are, I hope one or the other comment is helpful.

Ed

No, you can’t claim them – at least not without major consequences.

Maintenance costs for rental properties is for repairs only, not improvements. Replacing a roof, gutters and furnace with new ones is an improvement. The cost would also be too large to be considered an expense of the year.

Therefore, you would have to capitalize them and show them as an asset – not an expense.

The problem is that if you claim depreciation on an asset that is part of your home, you risk losing your principal residence status. Claiming depreciation when the rental property is part of your home is not a good idea, unless the asset is not part of the home (such as a fridge or stove).

I’m sure it seems unreasonable to you, doesn’t it, Doby? If you claimed them, it would probably be as much as your entire rent for the year.

Ed

Last year I had to replace a leaky roof & gutters and furnace. Can I claim these? I live in BC.

So if my husband, the higher income earner, pays me to collect rents, repairs, etc, he can deduct my wage?

Also, what if I provide more than regular services to 2 out of my 7 properties, can I be considered as a business or just business income for 2 of the properties and rental income from the others?

No. The principal portion of the mortgage payment is not deductible because you are not paying an expense. You are reducing debt. Only expenses are deductible.

The capital gain you are taxed on when you sell is based on the gain or loss from your cost of purchasing the property, not from the mortgage balance. Paying down your mortgage does not increase your capital gain.

Ed

I already own a few rentals here in canada, now wishing to buy a property in Florida. I would rent as a vacation home for seasonal purposes, can i claim expenses and claim any losses against my other incomes.

I have a question that doesn’t appear to have been answered. My husband’s name is the only one on the title, but I claimed the rental income for 2009. He is the bread winner and I stay at home, so I am the one who handles the property. Is this allowed, or does he have to claim it on his taxes, and do I have to go back and redo last year’s as well?

Thanks so much in advance!

Can you explain a bit more on the recapture of CCA?
I know I cannot claim CCA to create a rental lost. But if I have already a rental lost before CCA, can I claim it to increase the rental lost?

If I sell the rental property after several years, how is the recapture of CCA calculated? Will all the CCA be added to my income at the year when I sell the property?

Thanks again,

@Walton – My understanding is that as long as the intention was to rent out the property (ads in the paper etc), then it can be claimed as a loss. You should double check with an accountant though.

Thanks