# Deduction for basement suite



## Mtlcouple (Jun 19, 2012)

Hi

With tax season upon us, I have a question.
I bought a triplex 3 years ago.
The basement was so worn out, I didn't bother renting it out until the renos were complete.
I live in one of the units.
I will go see an accountant, I just want a heads up.

I spent $18000 on the basement renovations. Do I divide that money (18000/3 and deduct 12000 on my expenses) or can I write the whole deduction (18000) since it was wholly used for renovating the basement.

Thank you


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## marina628 (Dec 14, 2010)

You claim entire cost for the building but then you have to declare how much was used for personal use.SO usually you will claim 1/3 personal use which would mean about $12000 deductible.But not all expenses are eligible to be written off this way so best you have the accountant look it over.I have a friend who could not write off a reno of a basement suite until he sold the unit had something to do with Capital Cost Allowance or something like this.


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## Mall Guy (Sep 14, 2011)

marina628 said:


> . . . But not all expenses are eligible to be written off this way so best you have the accountant look it over.I have a friend who could not write off a reno of a basement suite until he sold the unit had something to do with Capital Cost Allowance or something like this.


For sure . . . capital costs (such an as an extensive renovation vs. repairs) need to be amortized and depreciated . . .


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## balexis (Apr 4, 2009)

Two areas you should ask your accountant:
- Deductability: some expenses are current expense (fully deductible in the year they incurred) and capital expense (increases the base acquisition cost of the rental). See http://www.cra-arc.gc.ca/tx/bsnss/tpcs/rntl/bt/rprt/xpns/menu-eng.html. This is something your accountant must help you, out of your 18k renos some might be current expense while some might be capital.
- Ratio: since the 18k was invested for a unit that is dedicated to rental, you should consider 100% of the amount and not 2/3 of it.


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## marina628 (Dec 14, 2010)

I believe the ratio is affected when the owner lives in the same property.We had a duplex in 1991 ,lived in one part rented the other and I know we could not deduct all costs back then when we renovated the other portion.That was 20 years ago so things could have changed since then.


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## Mtlcouple (Jun 19, 2012)

Thanks for your responses. 
I did some digging and here is what I came up with. 
The renovation is considered a capital expense, therefore you can only claim a percentage as depreciation for each year. It would be a third of 4% (Class 1) of the value of the cost of the renovations for the year. Any renovations that add to the value of the building are considered a capital cost and therefore are added to the Adjusted Cost Base of the building. Whatever you claim for depreciation will have to be added to the price of the building minus the Adjusted Cost Base when you sell the building. 
That being said, I don't understand CCA. I don't see the big picture. 
Whenever I google it, it or someone just quotes the CRA website.


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## MoneyGal (Apr 24, 2009)

This is a complex area, with significant financial implications, which you need to understand before you make the choice to claim CCA or not. 

You should work with an accountant or other tax professional to ensure you understand the implications of taking CCA (likely increases the current cash flow from the property) versus not taking CCA on the property (which will preserve more of the capital gain). 

You should also understand how deductions/CCA are taken against the property (i.e., what is a current expense versus what is a capital expense), and how the principal residence exemption factors in to your situation and decision. 

All the information is available on the CRA website, but it can be very helpful to have someone explain the tradeoffs to you with specific numbers for your situation. If you take CCA now, and your property gains in value over time, you can potentially face a significant tax bill when you dispose of the property even though it is your principal residence.


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## Pennypincher (Dec 3, 2012)

Another point to add - when did you start earning rental income from that basement suite? Ah! AFTER renos were complete I see. You cannot deduct your renovation expenses against current rental income even if they are current expenses and not capital expenses (It sounds like a lot of your expenses would be capital anyhow as you are vastly improving the property). You will mostly like have to add the cost of the renos to your adjusted cost base for the property and can take the deduction against any possible future capital gains when you dispose of the property.


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## marina628 (Dec 14, 2010)

We have 5 investment properties and not taking any CCA on them , As MoneyGal indicated this is best discussed with Accountant as everyone has different set of circumstances.


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