Rental real estate provides more tax benefits than almost any other type of investment, yet many of landlords pay more taxes on their rental income than they have to. Being able to take advantage of so many tax deductions is often what makes owning rental property such a lucrative venture. The following are the most common tax deductions for landlords:
These expenses cannot be deducted in a single year, but rather must be depreciated over multiple years. The depreciation expense is used for those things you have purchased for your business which have a useful life beyond the current tax year. For something to be considered depreciable, it has to meet three rules which are: be expected to last for more than a year, be valuable to your business in some way, lose its value or wear out over time.
There are, in general, three types of costs you need to capitalize and depreciate: the value of the structure, not the land, and the value of improvements to the structure such as appliances, carpets, windows, furniture, etc.
You can deduct the interest you have paid on business related liabilities. These interest payments are considered an expense and for example, you can deduct the interest you have paid on mortgage payments or other business loans, and car loan payments (but only the part used for business purposes). Landlords can also deduct interest on credit cards if the funds are used to purchase goods and services related to a rental property’s operations.
Repairs are defined as any effort to maintain the current condition of a property or asset. They do not add significant value to a property. The cost of repairs to rental property (provided the repairs are ordinary, necessary, and reasonable in amount) are fully deductible in the year in which they are incurred.
All business-related insurance premiums are tax-deductible. You can deduct the premiums you pay for almost any insurance for your rental activity. This includes homeowners insurance, mortgage insurance premiums, fire/damage/liability insurance, flood insurance, theft insurance and health insurance for your employees.
#5. Travel Expenses
Landlords are allowed to deduct certain local and long distance travel expenses that are business related. This does not include commuting expenses. Any long distance travel to visit your assets or to conduct rental business is tax-deductible as a business expense.
To stay within the law (and avoid unwanted attention from the CRA), you need to properly document your long distance travel expenses such as air fare, car rentals, taxis, hotel bills, 50 percent of meal expenses during long-distance travel and train tickets etc.