Around tax time, you probably want to know and understand the options you have for potential write-offs. For anyone who invests in real estate rental properties, especially self-managing landlords, there are a number of write-offs that are often overlooked at first or forgotten entirely. The Canadian government enables you to deduct any and all reasonable expenses you accrue in the process of earning income through rental properties. These costs fall into two general categories: current expenses, which are costs that typically reoccur after a short period of time, and capital expenses, which involve costs that go toward creating longer-lasting benefits or advantages to a property.
Tracking and Accounting Software
One costly aspect of investing in rental properties and managing them is keeping adequate accounting and tracking records for various properties. In the digital age, making use of technology to cut down on some of these costs is a reasonable option and Intuit QuickBooks accounting software is flexible enough to deal with all types of income generation, including income from property receivables. The added benefit to using this software is that the monthly or yearly subscription fees you pay, as well as other costs you incur for bookkeeping and auditing services, can all be written off at tax time.
Transportation and Vehicle Expenses
As a landlord, a great deal of your time and money may go toward travel between properties, driving to meetings with tenants or service personnel working on properties, or travelling to perform work on properties yourself. This can sometimes include the amount that another individual spends on transportation if youve designated him or her with the above responsibilities. Certain requirements must be met. You are eligible to deduct vehicle expenses only when you own a single-family rental property from which you generate income, perform all or at least some of the required maintenance on the property, and require the vehicle to move tools and other materials to the property. You are only eligible to deduct transportation and vehicle expenses for observing repairs, collecting rent, and other managerial responsibilities if you own two or more rental properties. Expenses for the care and maintenance of your vehicle are also subject to restrictions in terms of write-offs. You can be granted tax deductions for gas, oil, repairs, insurance, licencing and registration fees, loan interest, and leasing costs. You can only claim these deductions when the vehicle is being used to aid you in earning income from your rental properties.
As noted above, capital expenses are costs you incur that significantly improve a piece of property or increase its value in a substantial way. The purchase price of the property itself, as well as all of the legal fees associated with the purchase, are considered capital expenses and are all deductible. Deductions for the depreciation of a piece of property against your income are also considered capital expenses. While this move is initially smart because it helps you protect and bolster your cash flow, you ultimately pay taxes once you sell the property and your capital gains are determined.
If you operate out of an office on or near one of your rental properties, you can deduct the cost of supplies to the office. This generally includes small expenditures for things such as typical office supplies. You are eligible to deduct significantly more if you utilize an office set up in your home, but, you must do at least 50% of your work from the home office, or you must only use the office space to perform duties related to earning income from your rental properties. If you meet either of these requirements, you can deduct costs for heating, electricity, maintenance, insurance, and property taxes, but only on the portion of your home that you use as an office space, and the deductions can only be applied to the income you earn from your rental properties.
Any legal fees that you accrue to prepare and verify leases or rental agreements can be submitted for deductions. As a landlord, you may also run into situations where legal fees add up in the pursuit and collection of overdue and unpaid rent costs. These fees are also deductible at tax time. Remember, you cant deduct legal fees you incur on the purchase of a rental property from your gross rental income. Instead, simply allocate the fees between the land the building stands on and the building itself, and then add them to the respective cost of each. There are a vast number of fees, charges, and general expenses you encounter as a landlord. Consider learning what costs can be deducted and how to properly deduct them to save yourself money at tax time.