How much repair expenses can i claim on rental property?
My question is can i 50k in expenses or what portion of $50k is tax deductible?
Jul 10th, 2020 12:24 pm
Jul 10th, 2020 12:37 pm
Jul 10th, 2020 12:43 pm
Jul 10th, 2020 1:34 pm
Jul 10th, 2020 1:38 pm
I would go with capitalizing the costs then depreciating accordingly. I believe renovations fall under Class 1. You'll have to keep track of depreciation till the sale of property then determine recapture or terminal loss. Bit of a tedious bookkeeping exercise but better than a CRA audit.
Jul 10th, 2020 2:17 pm
Jul 10th, 2020 3:21 pm
Jul 10th, 2020 4:43 pm
I believe this is more straightforward. I spoke to a couple of accountants earlier who said that you can expense the painting as part of general maintenance/wear and tear. The appliances can be capitalized without needing to do CCA on the property itself. You'd do CCA/UCC method of depreciation for appliances (Class 8 - 20%). At the time of sale, because the appliances are sold as part of the property you can claim terminal loss on them because there's no clear way to separate the value of the appliances from the property itself.wiab89 wrote: ↑ I also have a similar Q with respect to my rental. I bought new appliances and paint for the new tenant. I don’t want to claim CCA on the property and get F’d by CRA when I sell. How would I go about claiming these as expenses without also claiming CCA on the property as indicated above?
Jul 10th, 2020 6:38 pm
wiab89 wrote: ↑ I also have a similar Q with respect to my rental. I bought new appliances and paint for the new tenant. I don’t want to claim CCA on the property and get F’d by CRA when I sell. How would I go about claiming these as expenses without also claiming CCA on the property as indicated above?
I have always expensed painting under "Maintenance" for each year.Clueless Fox wrote: ↑ I believe this is more straightforward. I spoke to a couple of accountants earlier who said that you can expense the painting as part of general maintenance/wear and tear. The appliances can be capitalized without needing to do CCA on the property itself. You'd do CCA/UCC method of depreciation for appliances (Class 8 - 20%). At the time of sale, because the appliances are sold as part of the property you can claim terminal loss on them because there's no clear way to separate the value of the appliances from the property itself.
I called CRA about it as well but they didn't give any clear-cut answer as to what should be done, just that 'it depends on the scenario and if you're reasonably able to estimate the cost'.
I'm not sure if the same argument can be applied for renovation of the property itself where you can claim CCA/UCC on the renovation part only but not do it for the property.
This is a good question and I'd like to know this as well. Maybe one of the practicing resident tax accountants can shine a light on both. @PolarisCPA ?
Jul 10th, 2020 8:13 pm
Thanks for this, can you clarify if you need to claim CCA on the property itself in order to claim CCA for renovations? Or can you keep the CCA bookkeeping limited to the renovations specifically?SAM3674 wrote: ↑ I have always expensed painting under "Maintenance" for each year.
In the CRA T4036 Income Guide, there is a clear definition of what constitutes a current expense, which is 100% deductible in the tax year that it is incurred. Thus a replacement item like a fridge or washer may be claimed as a current expense provided it was similar in quality and features. The same applies to a roof or retaining wall; if you can prove that the replacement was of identical material (example: shingle roof replaced by shingle roof and not metal) and did not improve the looks in any significant manner (replacement of brick retaining wall with brick and without adding landscaping), you can claim as a current expense. But usually renovations bring a major improvement to the looks and functionality of your rental property, especially if those enhancements were meant to attract a higher paying tenant. In that case, cost of capital equipment would not qualify as current expenses.
The burden of proof is on you. Take photos of the "before" and "after" situation. With appliances, for example, you can download old instruction manuals that show features and these can be used to compare against the new item.
If the appliances are much improved over the old ones, (example: a $3000 Samsung smart fridge replacing a $600 Haier special) it is better to list them as capital items on the last page of the T776. @Clueless Fox: I agree that you can choose to declare a zero amount for CCA in annual tax returns, and recover any loss for capital appliances when you eventually sell the property.
See page 13 of the T4036 for definition of current and capital expense, page 22 for @wiab89 question on how to claim CCA on your T776.
T4036 Rental Income...
Jul 11th, 2020 5:23 pm
I've never claimed my CCA each year, nor have I made any improvements to my building in all the years that I rented the property. The line for the UCC )Undepreciated Capital Cost at the beginning of Year for "Buildings" under Class 1) in the Area A table of my T776 remains the same each year. My next line on the same table is for Capital Equipment (appliances) under Class 8 and I can choose to make the CCA claim (or not). I used StudioTax software and you can override any line choosing any amount you wish to claim in column 12.
Jul 11th, 2020 10:56 pm
Jul 12th, 2020 1:44 pm
Jul 12th, 2020 6:38 pm
Jul 12th, 2020 8:26 pm
As I understand it, for the most part, declining balance depreciation method is used so it's not 5 years as it would be for straight-line. Again, CRA's language is not crystal clear that you can't use other methods, so I think you can pick a method and be consistent with it. If you are using declining balance and get it down to $100 or so, I'd just claim terminal loss or something. I don't expect CRA to come after you for such immaterial amount.
CRA link on Capital Cost Allowance on Rental PropertyFor the most part, you should use the declining balance method to calculate your CCA, as it is the most common one. This means that you apply the CCA rate to the capital cost of the depreciable property. Over the life of the property, the rate is applied against the remaining balance. The remaining balance declines each year that you claim CCA.
Nov 28th, 2020 4:18 pm
Nov 28th, 2020 11:23 pm
Nov 29th, 2020 5:10 pm
Nov 29th, 2020 5:29 pm
A new furnace is a capital expense not a deductible current expense. In other words you add it to the cost of the building and it may reduce your future capital gain. Alternatively you can claim building depreciation (CCA) but it is not recommended unless the property is actually depreciating in value.mrct1944 wrote: ↑ A rental property needs a new (replacement) furnace for safety reasons. I ordered the furnace ($6,000-) and paid 50% deposit in November 2020.
The installation and $3,000- balance paid will be in January 2021. How do I allocate this cost on Form T776 for 2020 and then 2021?
Nov 29th, 2020 5:52 pm