Do you take advantage of all the deductions available to you as a B.C. landlord? When you own a rental property, you are legally obligated to report all rental revenue on the Statement of Real Estate Rentals schedule on your personal tax return. Thankfully, you are also able to deduct a number of landlord expenses from your gross rental revenue and then pay tax only on the amount remaining. To help ensure you fully leverage the tax benefits legally available to you, here’s a list of the top 10 allowable deductions for B.C. landlords.
Top 10 Tax Deductions for B.C. Landlords:
1. Home Insurance
You can deduct the insurance premiums you pay for rental insurance. Claim the full amount if your rental property is separate from your primary residence or claim the appropriate portion of it if it is part of your primary residence.
- You can deduct interest on money borrowed for construction, repairs, upgrades and renovations to improve your rental property. However, you cannot claim a deduction on the interest you pay on mortgage principal if you borrowed money to purchase the rental property.
- If borrowed money is used for rental property (i.e. you incur new debt on your principal residence to buy rental property), the interest is tax deductible against the rental income even if the debt is not on that particular property
- If you refinance a mortgage on a rental property for personal purposes, the interest on the additional debt is not tax deductible.
You can deduct some of the costs related to the purchase of a rental property like closing costs, fees related to obtaining a mortgage, and fees paid to your real estate lawyer.
4. Property Taxes
You can deduct the property taxes you paid to your municipality for the current year (e.g. Vancouver, Richmond, North Vancouver etc.). If your rental property is within your primary residence (e.g. basement suite), deduct the correct proportion only.
5. Utility Fees
Deduct the full amount of your utility payments for a separate rental property (or correct percentage for property that is part of your principal residence). Utilities include heat, hydro, water, cable and internet.
6. Property Management
You can deduct salaries paid to property managers, superintendents, maintenance personnel (gardeners, painters etc.) and others you employ to care of your property. Note: You cannot deduct the value of your own services.
7. Professional Fees
Be sure to deduct fees like those paid for legal services used to prepare leases, accounting fees and collection agency fees.
If you need to travel to collect rents and oversee renovations and repairs, for example, you can deduct the costs associated with getting to your rental property (gas, airplane ticket etc.). You cannot deduct hotel and food costs.
You can deduct the cost of advertising your rental properties as well as finders’ fees if you hired someone to secure a tenant.
10. Vehicle expenses
If you own one rental property you can deduct vehicle expenses if the property is in the general area of your principal residence and you do most of the repairs and maintenance. Reasonable expenses include fuel costs, maintenance and repairs, insurance, licence and registration, interest on car loans, leasing costs. If you own more than one rental property, you can also deduct costs associated with travel to your rental property (see #8) to collect rents, supervise renovations and repairs and manage your property.
WARNING: BEWARE OF FLIPPING
CRA pays close attention to investors who buy and sell properties quickly. If the intention to acquire a property is not to earn rental income but rather to earn a profit, you will risk paying twice as much tax on that profit. While rental property income is taxed as capital gains, 50% of the gains are tax free; if, however, a property is flipped, the profit will be taxed as business income which is fully taxable.
For additional information and details on allowable deductions for landlords, visit Revenue Canada’s website.