How to Write Off Repair & Maintenance| Capital Expense VS Current Expense | Real Estate Tax Tips
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- Опубліковано 27 лип 2024
- How then do you know which expense is a capitalized expense or a current expense? What criteria does the CRA consider?
In the real estate investing world, spending money on updating your property is inevitable, even if you are buying a new place.
But, there are a variety of expenses that you can deduct against your rental income or the future sale price of the property. These expenses are either capitalized expenses or current expenses.
Watch today’s video where I’ll show you how to determine capitalized or current expenses and how to write off repairs and maintenance the right way in the eyes of CRA.
#RealEstateTaxTips #RealEstateInvestors #CanadianInvesting #CanadianRealEstateInvestors #currentexpenses #capitalexpenses #CRA #taxdeductions
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Thank you!!!!! ❤ For such straightforward explanation. The only video that helped. Tax became a bit more complicated this time around with kids expenses, moving, rental properties etc... but this helps me a lot!!!!
Glad it helped!
Thanks for the straight and simple explanation...Great Job....
🙏🙏🙏
Good job , Thank you.
Your information is GOLD. Thank you for your continuous sharing of this type of content.
Thank you !
Very interested. Thanks 😊
You’re welcome 😊
This was awesome
Glad you find it useful
Thanks, I have bought your book.
Thank you.
Thank you for the info, I was struggling to understand if replacing my current appliances what that would be considered a repair or a capital expense. You answered everything in a way that makes sense!
Glad you found it helpful
Could you please tell if repairs and maintenance done on rental property using fund from HELOC taken on rental, Would it be possible to deduct current expenses and HELOC intrest both?
Love to hear more about writing off all the things and what happens if your mortgage interest and maintenance costs and a new roof all fall in the same year. I have a basement rental in my principal but never knew the deductibility of everything (at 43% size of basement sq ft) could then be applied to my t4 income from my job?
Thanks for your comment. This will definitely be a topic of another day. When you have a primary residence, the deduction works differently as deducting certain expenses might put your primary residence exemption in jeopardy. In theory, you can technically deduct 43% of your operating expense (assuming that everything else would not jeopardize the PR exemption status on sale of property).
Very helpful
Glad to hear that
Very educative. Could you please talk about capital cost allowance rules or Depreciation. Thank you.
Absolutely. We have a couple videos from the past that discuss capital cost allowance as well. We will be producing a few more videos on it as well.
If you haven't subscribed already, make sure you do so you get notified once it is released.
Thank you for the great video. Do you have a video that discusses the tax treatment of closing costs associated with purchasing a property for rental use?
Closing costs on purchase are considered part of the acquisition cost and included in the ACB of the property
Hi Cherry, thanks for the video. What about a house that has two rental units, one tenanted, the other vacant. We are updating the bathroom on the vacant one before we rent it. It has been a legal duplex forever. It's that capital or repair, thanks
Thanks Cherry really appreciate for this information. Question about financing is the mortgage ( appraisal fee, broker fee) if you go with private mortgage for rental property is tax deductible same year you buy.
Thanks again
These fees are considered financing charges and can be deductible over 5 years. Not immediately but over 5 years.
Hi Cherry - I just purchased your book, I am very excited to read it!
I own a duplex in Ontario, I made some Capital Expense improvements last year. How, and at what point in time do you have to claim Capital Expenses for them to impact your adjusted cost base? i.e. do you claim them on your personal tax return in the year they occurred? If so, is there a way I can claim capital expenses that were experienced in a prior year that I did not include in my personal taxes for that year? Love all your videos, and appreciate what you are doing here. There is not much information out there for Canadian Tax Rules, all the resources I find are for U.S. tax rules only. : )
Capital improvement does increase your ACB of the property. You would keep the receipts, keep the support. You can also claim capital cost allowance later on against the rental properties. You can always refer back to a different video I did on claiming CCA. ua-cam.com/video/Poq1_0F1Cpo/v-deo.html
Hi Cherry, first of all thank you so much for all your videos it is very informative. Erwin here one of your subscribers from nova scotia. I bought a duplex here in nova scotia last December of 2020 my wife and I we spent some money on it putting new paints the entire two units. Fixed some minor issues on it like doors knobs and change the flooring on the washrooms. By February of 2021we rented out the two units. As you mentioned on the last part of your video. In our case do you think it will still be considered a capital expense?
Hi Erwin, Thanks for watching and you are welcome!
It is CRA's administrative policy that expenses incurred immediately after closing to get the house ready for rent is considered capital in nature, even though under normal circumstances they are considered repairs.
Is capital expense and cca same?
I'm a new real estate investor and this video was so helpful for me! I wonder if I could upgrade to a metal roof and use a percentage of the cost as a current expense and take the rest and use it as a Capitol expense?
Hi David, great question and I wish the answer is a yes. Unfortunately CRA would treat the upgrade as a capital improvement and the entire roof would have to be capitalized.
Hi Cherry- I purchased your book a week ago. I'm your newest fan!
I have a question. Can I write off the Repairs and improvement cost in my primary residence to lower my capital gains tax when I will sell the property later?
In Canada, your primary residence is generally tax exempt... so capital expenditures on your primary residence may not be relevant.
However, your primary residence may also be subject to tax, depending on whether you rent it out... it can get quite messy.
Hey Cherry, thanks for the video. What is a timeframe for immediately after purchase? Is a Purchase plus renovations mortgage considered in the intent to immediately do repairs after purchase?
Yes is could be considered intent to do repairs, moreso if the property is not rented out
Hi Cherry, new subscriber. When reporting current expenses, is a rental income loss carried forward (to also offset against future year taxes too)?- a situation where your other income is more than your rental income
Typically rental loss is offset against other income.
Hi Cherry, I'm new to your channel and have learned a lot from your videos.
I've just possessed my condo in mid Dec and expect to rent it out in Jan. Since I won't have any rental income this year but I have already incurred strata fee, property tax, utilities, and legal fee, etc,. does it mean I can't deduct them as current expenses for 2021? or can I claim them for year 2022 when I have rental income? Thank you!
Hi Bonnie, if you have the property available for rent in December provided that you can provide evidence, I would claim them as expense. Otherwise, I'll add it to the cost of the building and claim it as part of the purchase cost.
Hi, I'm so glad I found your channel. After the tenant moved out I repaired the roof and most of the damaged interior , but then I decided to sell the property, should I claim the repairs as current or capital expenses? And the repairs occurred in 2022 but I was only able to sell in 2023. I'd appreciate your expert opinion, I want to report my taxes correctly . Thank you so much.
If expenses are incurred for the purpose to sell, then you would likely have to capitalize the expenses. Capitalized expenses formed part of your ACB and when you report your taxes in 2023, you would be able to claim it
@@RealEstateTaxTips Thank you so much
Hi Cherry thanks for this informative video, I just have question on what you can write-off aside from appliances. Can you write the the furniture like bed? Thanks in advance for your response.
You can definitely claim the expenses you incurred for appliances and furniture, assuming that they are purchased for the purpose of running your rental. Similar to all other expenses, if these appliances and furniture are considered upgrade or improvement from before, or if you purchased these to get your house ready for rent, these expenses are considered capital expenses and it woudl be added as capital item instead of a one-time write off as current expense.
@@RealEstateTaxTips Thanks Cherry for your response, really appreciate it :)
In the year of selling a rental property would all repairs done be considered capital expenses? So if you paint, replace a backsplash put in carpet and replace doors. Would all of that be considered capital because they would see it as preparing for the sale? Or would you claim the smaller things like paint and backslash as current expenses?
If the expenses were incurred to sell, then they are all considered to be capital expense. If the repairs were done as a result of maintaining the property for tenants and earning rental income, then you can deduct it as current expense.
Are renovations in the rented half of a Primary Residence duplex considered current expenses?
It can be deductible, depending on the type of renovation and timing itself.
I just published a post this morning on a court case relating to repairs vs. capitalized expense. Check it out at RealEstateTaxTips.ca
If your renovation is considered repairs, then it may be eligible for a deduction as current expense against your rental income.
I was audited a few years ago. They disqualified as current expense a set or used stove and fridge. total cost $500. yes $500. they told me to capitalize it because the useful life is longer then one year. I tried to explain that it been more then 3 year no and more of the CCA would have written the used Fridge and stove off. anyways. No go. Fast forward in another suite we buy new washer and dryer, to replace the old ones, thus due to that encounter we capitalized the washer and dryer. I think i will writes off all appliance replacements as current from now one. if I get audited I will escalate to appeals. I think CRA treats people who do their own taxes differently then if they are done by accountants.
Albert all appliance purchase have an "Endearing Benefit" which is why they are written off over their useful life, even used appliances. Any escalation in the appeals process would most likely be unsuccessful and even an accountant prepared return would be denied this situation.
Is replacing the deck due to severe damage to restore the functionality for tenant to walk through the deck considered current or capital expense?
It depends on the extent and also if there's any upgrade involved in the process and also your risk tolerance. Likely a repairs but also goes back to all the other factors mentioned.
How long should it wait do some repairs after purchasing an old house to be considered as current expense?
It really goes back to what your plan is with the property.
There's no specific part in the Income Tax Act that would define a time period though.
I would wait for a while after tenants occupy the property...
Hello thanks for the great video. If you furnish a rental apartment for the tenant is that a current expense ?
If you start from scratch (meaning pretty much gutting it), then it is likely capital expense. Being added to the cost of the building and when you sell, you can deduct the expense
@@RealEstateTaxTips ok thanks ! What about if it is a new apartment and you buy furniture and some appliances for the tenant because it has nothing in it ?
Is replacing AC unit on a rental property considered current expense?
Great question, again, this goes back what we discussed in the video. If you never had an AC before, i would say purchase of AC has to be capitalized. If you replace an AC with same quality of AC and you always have tenants in this property, chances are, I would write it off. But if you are buying a old house and you know you need to replace the old ACB, then it cannot be written off.
It isn't straight forward, but it always goes back to the same principle described in the video.
Hi Cherry,
I have a question that might not directly apply to this video.
Let's say I have some current expenses + the rental expenses of a combined 20k and my rental income is 10k for that year. Does that mean I have 10k tax write off for my employment income?
Technically the answer is yes.
Do you help out of province investors? Also, where do I find your book?
For sure. We help everyone in Canada except Quebec investors.
You can find my book on Amazon.ca and search Complete Taxation Guide to Canadian Real Estate Investing. :)
😌🌻
How much can you get from capital expenditures? Is it better to claim as current expense?
Always better to claim it as current expense, but CRA may or may not allow you to do so.
@@RealEstateTaxTips thanks!!!
Love