# expenses when renting rooms in primary residence



## jamesbe (May 8, 2010)

A friend is asking me and I haven't really much of a clue regarding renting primary residence space.

He has a 4 bedroom house, he rents 3 of the bedrooms out. He claims the income on his income tax and is wondering if he then claims 33% of household utilities, mortgage interest and taxes as part of deductible expenses on the property.

Any help? He is mostly concerned with the mortgage interest and property tax as he is reading it thinking he can put it as 100% deductible. I don't think that is correct, unless he CCA's it..


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## Charlie (May 20, 2011)

I tend to keep it to less than 50%. I like to make it clear my home was primarily a personal residence for purposes of the principal residence exemption.

He needs to apportion reasonably based on use of the home -- taking into account square footage and use of common areas and basement too. But my bias is stated above. It's possible to go higher on a temp basis -- but I would be cautious.


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## MoneyGal (Apr 24, 2009)

Neither mortgage interest nor property tax are capital costs; they don't impact the decision to take CCA on a property. 

Heed Charlie's advice. I'm not sure how he's reading that he can deduct 100% of costs for which he derives a personal benefit (he lives in the house) but in any case he's putting his principal residence capital gains exemption at risk once he starts saying it's a business asset more than it is a personal asset. 

In any case, he should also ensure that he isn't showing losses once his costs/expenses are deducted. If he wants to take deductions from the income as business income, he's got to show some expectation of profit at some point.


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## Four Pillars (Apr 5, 2009)

If he ends up claiming a percentage - shouldn't he consider using 75%? He's only using 1/4 of the house, since he's sharing with 3 other people. I'm assuming he's single.


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## MoneyGal (Apr 24, 2009)

He's using 1/4 of the *bedrooms.* 75% is still way too much.


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## OhGreatGuru (May 24, 2009)

T4036, on p.10, gives a very simplistic example for apportioniong costs if you are renting out 4 rooms of a 10-room house. It's not too clear how you calculate the number of "rooms", whether you should really be using floor area; if so do you have to include area of unfinished spaces; and how do you handle common areas. There's probably an interpretive document somewhere, but I don't see it listed.

I think you are really only renting out the bedrooms, and everything else is yours, even if they are common use spaces. But I stand to be corrected. Unless by counting "rooms" you are indirectly being allowed to exclude hallways, stairs, & entrances.


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## jamesbe (May 8, 2010)

He told me he is showing a loss, his rental income only covers his mortgage payment and he includes all utils etc so perhaps he is asking too little rent. It's his first time doing it and next year he is no longer going to do it, so is it okay to claim a loss?

It seems weird to me that there would be a loss ... Perhaps he should lower the percentage claimed until it breaks out even?


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## iherald (Apr 18, 2009)

I lost money on my rental for the first year, in fact I lost a lot of money because I had to set it up properly. The tax people had no problem and the next year I showed a profit.


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## Four Pillars (Apr 5, 2009)

MoneyGal said:


> He's using 1/4 of the *bedrooms.* 75% is still way too much.


Is he not sharing 75% of the house with the renters? I would think this would mean that he could write off 75%. 

Of course, my way of thinking has nothing to do with the actual rules, but it seems logical to me.


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## Just a Guy (Mar 27, 2012)

As far as I'm aware there is a tradeoff. If he claims the mortgage interest on his primary residence at a certain percentage, he'll be taxed Capital Gains at the same percentage when he sells (as opposed to the primary residence being tax free).

A better way to do it is to get a loan against the primary residence (say a HELOC) and using that as the downpayment on a different unit. Then the interest on the HELOC is tax deductible. If he spent $10,000 to repair the 2nd unit, which he paid (let's say out of the "profits"), he could then transfer $10,000 of his primary mortgage to the HELOC and write off the interest (thus paying down his primary, non-tax-deductible mortgage).

If you keep things separate, CCRA is happy, you muddy the waters, they can be nasty.


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## Cal (Jun 17, 2009)

He will not be allowed by CRA to claim more than 50% of the expenses. He can claim 50%. I had this situation previously, but not sure whether the rules changed in the past few years. 

I am sure that his accountant will verify this for him.


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