Five Tax Deductions for Owners of Rental Real Estate

By Randall Orser | Personal Income Tax

tax breaks

Whether you already own a piece of rental real estate or are looking to jump into the market, it is important to understand the many tax breaks for owners of rental real estate. In fact, properly deducting all of the expenses that rental real estate can provide can add greatly to the profitability of a rental property investment. Here are five ways that rental real estate can lower your tax bill.

Interest Deductions

Most rental real estate owners realize that the interest that he or she pays on a mortgage is tax deductible. However, it is not just mortgage interest, but almost any interest paid for the rental property that is deductible. This generally includes credit card interest for purchases for the property, interest charged on bills due to service providers and other related interest charges.

Repair Deductions

Expenses paid for repairs to the property which maintain the property in rentable condition are deductible expenses. For example, painting the interior or exterior of the building, replacing worn flooring and repairing a leaking faucet are all deductible expenses. However, those same expenses incurred when getting the property into a rentable condition are considered capital expenses, and added to the original purchase cost of the property. When an owner performs the work, he or she can only deduct the costs for materials and not labor.

Travel Expenses

Operating a rental property often includes a lot of travel. This may include trips to the property to show it to prospective tenants or to inspect repair work, driving to a hardware store to pick up needed supplies or going to a newspaper office to place an ad in the paper. With the high costs of gasoline and other travel costs, these little trips can eat up a lot of cash. However, owners of a rental property can deduct these expenses and recapture some of the money spent running around town.

Maintenance/Management Costs

The costs to maintain and manage a rental property can quickly add up. From advertising the property for rent to paying for lawn care and snow removal, these small expenses will quickly turn into a significant cost. However, these expenses are deductible to the owner of the rental property. Any charge directly related to keeping the property in good working condition or managing the rental of the property is a tax deductible expense.

Property Depreciation

When a person buys a rental property, CRA allows the owner to depreciate the cost of the buildings and other structures (not the land) over time. This means that over time an owner can deduct the entire purchase cost of the buildings. The rate at which an owner can depreciate a rental property will vary depending on a number of factors such as whether or not the property is a residential or commercial rental. Improvements to the property, such as the construction of an addition, are also eligible for depreciation.

An owner of a rental real estate property should carefully track any expenditure related to the property and save all related receipts. By saving this information and using the services of a tax professional, an owner can save a lot of money.

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