Unlocking Tax Savings: Unexpected Deductibles for Real Estate Investors
As tax season approaches, many DIY real estate investors may wonder how to reduce their rental income tax burden. Fortunately, the Canadian tax system offers a variety of deductions that can help offset your rental income. These deductions are not only legitimate but can also result in significant savings when claimed correctly.
Here’s a breakdown of some unexpected and commonly overlooked deductible expenses to consider this tax season:
1. Upgrades and Renovation Costs as CCA
Did you upgrade or renovate your property recently? While capital improvements like new roofing, flooring, or kitchen upgrades may not be immediately deductible, they can be claimed as Capital Cost Allowance (CCA) over time. This depreciation helps reduce your taxable rental income incrementally.
2. Furnishings and decor as CCA
If your rental property is furnished, you can claim the depreciation of furniture, appliances, and even décor items as Capital Cost Allowance. This deduction can make a significant difference for short-term rental investors who provide fully furnished units.
3. Mortgage Interest and Refinancing Interest
The interest paid on your mortgage is deductible. In January your bank will send an annual mortgage statement to you, it’s here that you will find the total interest that you paid on your mortgage for the year, but it doesn’t stop there. If you’ve refinanced your property to fund another real estate purchase, the interest on those refinanced funds is also deductible. Be sure to keep clear records of how the refinanced funds were used.
4. Vehicle Lease Payments, Gas, Maintenance, and Insurance
If you use your personal vehicle for rental property management tasks, such as visiting tenants or delivering supplies, a portion of your vehicle expenses can be claimed. This includes lease payments, gas, maintenance, and insurance. Make sure to maintain a detailed log of mileage and expenses.
5. Condo Fees, HOA fees and Property Management Fees
For investors owning condos, or in communities where HOA fees are applicable, monthly condo fees and HOA fees are tax-deductible. Additionally, if you’ve hired a property management company to oversee your property, their fees are also a deductible expense.
6. Utilities During Vacancy
If your property was vacant during the year, you may still have paid for utilities such as gas, electricity, and water. These costs are deductible even when the property is not generating rental income. Learn practical strategies for reducing tenant vacancy.
7. Insurance Premiums
Insurance coverage for rental properties, including landlord-specific policies, is deductible. This includes premiums for fire, flood, or other rental property insurance policies.
8. Property Taxes
Your annual property tax bill, which should already have been mailed by your city, is fully deductible. Whether you're renting out a single-family home or a condo, don’t miss this essential deduction.
9. Cost of Advertising and Marketing
Whether you’re paying for online listings, professional photography, or traditional ads, advertising expenses are deductible. These costs can add up quickly, so make sure to document them.
Other Deductions to Explore
Professional Fees: Costs related to accounting, legal advice, or real estate consulting are deductible.
Office Supplies, Software licensing and Home Office Expenses: If you manage your rental property from home, you can claim a portion of your home office expenses.
Repairs and Maintenance: Any repairs made to the property, such as plumbing fixes or painting, can be deducted immediately.
Software licensing, mobile device and subscriptions: If you need specific software or subscriptions to run your property portfolio you may use these expenses to offset rental income.
Tips for Maximizing Your Deductions
Keep Detailed Records: Retain all receipts, invoices, and supporting documentation.
Understand CCA Limits: Be cautious when claiming CCA, as it can impact future gains if you sell the property.
Consult a Tax Professional: Tax laws are complex and can vary depending on your situation. Always consult a qualified accountant that can ensure you claim every eligible deduction while remaining compliant.
Why Choose Berton Properties as Your Investment Partner?
At Berton Properties, we understand the complexities of managing rental properties, including navigating tax season. As experienced property management experts, we help investors streamline their operations, maintain proper records, and ensure they maximize their investment returns. However, we are not tax consults, therefore you should always work with a professional tax accountant to ensure your tax submission is both accurate and optimized.
Contact us today to learn how we can simplify property management for you!
Final Thoughts
Tax season doesn’t have to be daunting. By understanding and leveraging all available deductions, you can significantly reduce your rental income tax burden. With careful planning and the right partners, your real estate investments can thrive. Here are 10 questions to ask prospective property management companies before hiring them.
