Skip to content
CA
  • House Design
  • Home Improvement
  • Renovation
  • House Renovation
  • Bathroom Decoration

What expenses can you deduct when renovating a rental property?

Posted on 19/06/2023 By Kartika
House Renovation

Rental property owners can typically deduct property taxes, insurance, interest, condo fees, repairs, utilities and other related costs. A rental property can even run at a loss allowing the taxpayer to claim deductions against their other sources of income.

Rental properties: Current vs capital expenses

There is a distinction between repairs and renovations for a rental property, Shawn. Repairs are referred to as current expenses, meaning they are deductible in the year incurred. Renovations are capital expenses that cannot be deducted immediately but can reduce your capital gain upon sale.

According to the Canada Revenue Agency:

A current expense is one that generally recurs after a short period. For example, the cost of painting the exterior of a wooden property is a current expense.

A capital expense generally gives a lasting benefit or advantage. For example, the cost of putting vinyl siding on the exterior walls of a wooden property is a capital expense.

The CRA provides guidelines for distinguishing between a current and capital expense, including:

  • Does the expense provide a lasting benefit? If so, it is more likely to be a capital expense.
  • Does the expense maintain or improve the property? If it is an improvement, it is more likely to be a capital expense.
  • Is the expense for a part of the property or for a separate asset? If it is a separate asset, such as an appliance, it is more likely to be a capital expense.
  • What is the value of the expense? If it is high, it is more likely to be a capital expense.
  • Is the expense for repairs made to a property in order to sell it? If the expense is in anticipation of a sale, it is more likely to be a capital expense.

A typical capital expense is a renovation to improve a property. In your case, Shawn, since the property was not being rented out due to renovations, some of your carrying costs, such as property taxes, insurance, interest, utilities and condo fees may be considered capital expenses, meaning you cannot deduct them.

What are soft costs? How do they treat?

According to the CRA, soft costs are the expenses incurred while renovating a property to make it more suitable for rent. These include the expenses above, as well as legal or accounting fees.

Soft costs may be deductible against your rental income, but the deductions are limited to the rental income earned. In your case, Shawn, they may be considered capital costs that increase your adjusted cost base and reduce the capital gains upon the sale of the property.

Capital gains or business income?

Another consideration, Shawn, is that if you bought, renovated, and sold the property, there is a risk for your capital gain—which is only 50% taxable—is considered business income. Selling a property soon after purchasing it may be considered flipping, and the resulting business income is fully taxable.

Tags: house renovation cost house renovation ideas before and after house renovation shows house renovation tips old house renovation pictures

Post navigation

❮ Previous Post: How a $360,000 renovation transformed a Junction shack into a sparkling family home
Next Post: How I create living rooms that showcase your unique style | ❯

Recent Posts

  • Exploring Cooking With Exotic Fruits
  • The Impact of Gadgets on Environmental Sustainability
  • Choosing the Right Laptop for Graphic Design
  • Gadgets for Efficient Time Management
  • How to Embrace Change in the Tech Landscape

Tags

assam type house design photo business design your own house estate home design home improvement hulu home improvement loan home improvement loan rates home improvement products home improvements home improvement season 1 episodes home improvement stores near me home improvement streaming netflix home improvement tv show house design house design drawing house design games house design ideas house design online house design plans house design software free house remodeling house remodeling ideas house renovation design house renovation games jewellery latest newest nice house designs old house renovation ideas online renovate home renovating renovation angel renovation house renovation island renovation meaning in hindi renovation order of operations renovation process renovation projects renovation vs restoration simple house design technology types of renovation why did home improvement get cancelled

About Us

  • Contact Us
  • Disclosure Policy
  • Sitemap

Theme: Oceanly News Dark by ScriptsTown

WhatsApp us