# Tax deductions off rental mortgage?



## Michelle83 (Oct 9, 2012)

Sorry, one more question.  So if I bought a new rental using a down payment of $50k and it was valued at around 200k. My mortgage would be around $600-700 depending on my term, etc, so once you add condo fees + taxes, we'll be around $1100. 

If I rent that out for $1100, thus just breaking event and not making any profit whatsoever on a month to month basis, can I still claim mortgage interest expense against my own personal income on my tax return? 

Right now I own my own business and have so few write-offs, if I could this would be a massive benefit to me. I pay so much in personal taxes each year... it's hard to take. 

And secondly, just so I fully understand how this works, if in say 20 years I sold this rental and it was the same $200k I bought it for (I know that's highly unlikely), I would have no tax repercussions because there is no capital gain? 

If I sold for 300k though, then I would be taxed 50k of that (100k difference) at my personal income tax rate? 

Thanks in advance.


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## balexis (Apr 4, 2009)

> If I rent that out for $1100, thus just breaking event and not making any profit whatsoever on a month to month basis, can I still claim mortgage interest expense against my own personal income on my tax return?


That is correct, you can claim mortgage interest, thus leading to a net loss at the end of the year. However, the general rule is that if the CRA thinks you have no reasonable expectation of profit, the loss will be denied.



> And secondly, just so I fully understand how this works, if in say 20 years I sold this rental and it was the same $200k I bought it for (I know that's highly unlikely), I would have no tax repercussions because there is no capital gain? If I sold for 300k though, then I would be taxed 50k of that (100k difference) at my personal income tax rate?


There is a concept of capital vs current costs in a rental. Some expenses (such as acquisition costs) cannot be claimed in expense, instead they must be capitalized (added) to the cost of acquisition. So when you sell, you are taxed on (selling price) - (acquisition price + capital costs). It is crucial that you understand the difference between capital costs and current costs, as it can have a high impact on your cashflow and general profitability. See these links:

http://www.cra-arc.gc.ca/tx/bsnss/tpcs/rntl/crcp-eng.html
http://www.cra-arc.gc.ca/tx/bsnss/tpcs/rntl/cca-dpa/menu-eng.html

Except this "detail", your understanding of capital gain for a rental unit is roughly the same as mine.


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## Spudd (Oct 11, 2011)

However, you'd be making money off the rental in the money that goes towards paying down the mortgage principle. The entire rent amount would be added to your personal income before the expenses would be deducted. The net should be a slight increase to your personal income, not a decrease (because you can only deduct the interest/condo fees/property tax, and not the principle repayments).


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## Michelle83 (Oct 9, 2012)

Thanks for both of the replies and the links - that's very helpful. 



Spudd said:


> However, you'd be making money off the rental in the money that goes towards paying down the mortgage principle. The entire rent amount would be added to your personal income before the expenses would be deducted. The net should be a slight increase to your personal income, not a decrease (because you can only deduct the interest/condo fees/property tax, and not the principle repayments).


Okay, so just so I understand this, let's use some example figures (just chosen somewhat randomly for illustration purposes). 

Let's say I make 100k/year. I pay personal income tax right now of$30k. 

Now I own a condo I am charging $1000 rent for/month. This breaks down to $600 mortgage (say 100 principle, 500 interest) and $400 for condo fees/ property tax. 

So I am going to add $12000 to my yearly salary ($1000 X12) and then would subtract the expenses of $500 for mortgage interest and $400 for condo fees/property taxes for a net income now of $101,200? 

If I didn't have to add the amount of rent I charged as income (since I wasn't profiting as it balanced perfectly), I thought this may be a great way to increase my tax write-offs.  Right now I have so few and pay in the second highest tax bracket. Tax time is a bit painful....


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## Young&Ambitious (Aug 11, 2010)

I thought you were a business owner? You should be having many more tax write off opportunities than the average employee. I hope you use a tax accountant, if not I recommend having one review your personal and business situation for potential tax opportunities.


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## Michelle83 (Oct 9, 2012)

Young&Ambitious said:


> I thought you were a business owner? You should be having many more tax write off opportunities than the average employee. I hope you use a tax accountant, if not I recommend having one review your personal and business situation for potential tax opportunities.


Yah, I am but my business is freelance writing, so my only deductions are basically computer (which isn't every year), internet, health care, a small portion of my home, and that's about it. I don't travel to meet clients and I pretty much do all my work online and in word documents.


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## AMABILE (Apr 3, 2009)

just throwing this open to everyone
would a smaller down payment and 
charging only $1000 rent help her ?


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## Young&Ambitious (Aug 11, 2010)

AMABILE said:


> just throwing this open to everyone
> would a smaller down payment and
> charging only $1000 rent help her ?


Nope, she'd be paying $1,100 in expenses (cash outflow) for only $1,000 in rental income (cash inflow) so this wouldn't make financial sense. That doesn't even include property tax and repairs.


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## AMABILE (Apr 3, 2009)

Y & A.....but the op is looking for tax deductions


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## Michelle83 (Oct 9, 2012)

Well, the added tax deductions would be a great bonus, but I think I'd still want to be breaking even on the rental or else making some profit. I just got thinking if I was able to deduct all these expenses, it could reduce my personal income tax level. But it would make sense I'd have to add the income from the rental, so then it would offset that.


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## OhGreatGuru (May 24, 2009)

_If I rent that out for $1100, thus just breaking event and not making any profit whatsoever on a month to month basis, can I still claim mortgage interest expense against my own personal income on my tax return? _

Sorry, you are "profiting" from it, because the extra $1200/yr in rent paid to increase your equity in the property (by paying down principle). You are trying to make the mortgage principal deductible, which it is not.

From the sound of things you need to to talk to an accountant about how to do accounting for an investment property.


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## MoneyGal (Apr 24, 2009)

Generally speaking you can get two, but not three possible advantages from a rental income property: current cashflow, tax advantages, and/or long-term capital gains. 

If your tenant is paying your long-term costs of ownership while providing current cashflow you have two of three advantages, and you have to live with the tax consequences or arrange your overall affairs so you are not paying more tax than you would otherwise (i.e., other tax shelters, RRSP contributions). 

If you structure the property so that you have current tax advantages (rental losses and/or taking capital cost allowance on the property), you are going to have to give up long-term capital gains (because you are taking the gains in the present, instead of deferring them). (Note: as someone has undoubtably already mentioned, CRA will eventually raise a red flag if you have consistent rental losses).


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## Michelle83 (Oct 9, 2012)

Thanks again for the replies. Okay, I figured I was missing something. That make sense.. it would be income and I would be profiting. Understanding the tax consequences/cash flow helps me make a better decision if I should rent out my condo in the first place.


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## Cal (Jun 17, 2009)

Not sure if you already have an accountant that you deal with in regards to your business, but a sit down with them would be best to discuss your tax advantages of buying a rental property.


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