# Capital expenses vs current expenses for rental condo



## nedstar (Dec 8, 2014)

I bought a rental condo a few months ago. Turned out it was in rougher shape than I thought and I have been 'refurbishing' it for the past few months. I'm trying to figure out my income tax situation for it. As there will be no rent this year there will be no rental income to write off against, it it was bought with the intention of renting out so I'm assuming I can write off expenses against my other income for 2013 (mortgage interest, condo fees, heat, repairs)?
As for expenses, with it not being rented out what would fall under current expense and what would fall under a capital expense? Much of what I'm doing would be considered repairs. Mold remediation in the attic, replacing falling down drywall ceiling in the basement, redoing upstairs washroom (shower leaked, toilet leaked), painting, some electrical fixtures etc. Now these things are just bringing the property back to original state, not improving it. I will be putting in new flooring and possibly some new cupboards in the kitchen, soundproofing two walls which I would think would be a capital expense. This is a low end condo and I'm doing the work myself so we are talking about $5000-6000 total, with about $3500 in what I would call repairs/current expenses and maybe $2000 capital expenses/expenditures.
Am I on track here or way off base? I had a screen name here years ago, but can't seem to log on as I no longer have the email address or password so re-registered with this one.
I seem to be getting 125 dollar'ed to death at Home Depot every other day and am hoping I can at least write most of this stuff off.
Thanks for any help anyone can provide!


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## nedstar (Dec 8, 2014)

Sorry, should have read "so I'm assuming I can write off expenses against my other income for *2014*"
Been a long day


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## Guban (Jul 5, 2011)

I agree with your assessment of the write off situation. Current vs capital expenses sound reasonable.

After all of your hard work, Hopefully you'll find some reliable tenants soon.


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## Davis (Nov 11, 2014)

CRA is a better source of information that web forums -- sometimes contributors have outdated information or may misunderstand the rules themselves. I'd use any information you get here as a general guide, and confirm it with CRA information. Here is a link to what you can deduct as current and capital expenses. From that page, you can probably find information to cover your income-less situation. 

http://www.cra-arc.gc.ca/tx/bsnss/tpcs/rntl/bt/rprt/xpns/menu-eng.html


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## OptsyEagle (Nov 29, 2009)

My rule of thumb is if the expense still has value at the end of the year it is probably a capital expense. So contrast a new refrigerator, which still has value if it is still working at the end of the year, to the hydro bill that has no value after the power is used. So most of your renovations would be capital. 

After you get the thing renovated and rented, any repairs to existing renovations could be considered a current expense. In other words, if you re-drywall the whole unit, that would be a capital expense, but if your tenant puts his fist through the wall and you fix it, that would be a current expense.


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## nedstar (Dec 8, 2014)

I had been to that section of the cra site and it was very vague. I'm still confused but thanks everyone. Ie I'm retiling the shower after having to tear out the wall to get to the leaky plumbing. This will obviously still be there at the end of the year, along with all my other repairs but is not really an upgrade. I guess my biggest confusion comes from current expense considering I don't have a tenant this year. Not even a question in my mind that most of these things are current expenses as if I had a tenant and he moved out it would take the same amount of repairs to bring this property up to standard and I'd certainly write off mold remediation, plumbing repairs, new toilets, drywall ceilings falling down etc as a current expense and write them off against income. I just don't want to push the envelope and taxes stress me out. I've read you can call the CRA and get advice. Is this actually true?


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## Guban (Jul 5, 2011)

I agree that this section is vague, and people can read the same thing and have different interpretations. I still agree with your interpretations, however.

Beware calling CRA and relying on their advice. By all means, go ahead and try it, but if you don't like what one agent is telling you, hang up and try your luck with another. It depends on who you get, and they are not liable for any errors that they make.


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## Just a Guy (Mar 27, 2012)

The other thing you need to consider is how many rentals do you own? CRA doesn't allow the same write offs if you own less than a certain amount (3, I believe). 

Why not hire an accountant, you can write off his charges next year.


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## nedstar (Dec 8, 2014)

Thanks Guban. I'll definitely keep that in mind if I do call and if I don't I'll probably go with my original interpretations anyway. As long as there is no issue writing off against no rental income and writing it off against my other income I can't see how it can be much of an issue considering I think it's a good interpretation of the intention of the guidelines, not a huge amount, and I'll be paying taxes out the ying yang from work and the stock market this year anyway...lol.


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## nedstar (Dec 8, 2014)

Hi Just, it's only 1. I know about most of that and am not even going to bother writing off my vehicle etc. I refuse to go to an accountant after getting ripped off by h and r for years (ripped off meaning paying too much to someone who I basically had to help do my taxes because they were clueless). I've been doing my taxes for years now with investments etc, using turbo tax and recently studio tax. This is the first real problem I have run into, and as you can see by the answers it seems to be a very grey area. I like to err on the side of caution, but just hate the thought of losing even more money by hiring an accountant as I know my taxes...yearly stock trades, capital gains etc inside and out at this point and for the money I "won't" be making on this condo, the extra expense of an accountant would just be too much.


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## Just a Guy (Mar 27, 2012)

I understand, I would point out I suggested an accountant, h&r are more like the McDonald's of tax preparers...there is a difference.

It's a good idea to find a real accounting firm, one that understands your needs (so, I'm saying not all understand rentals). 

Personally, I never understood accounting (to me 2+2= 4, not a three million dollar loss) so I've always hired a professional. They've always saved me much more than I've paid them, and I've got corporate returns on top of personal ones. I was particularly happy with them when I got audited...turned out fine with nothing wrong. They also help me plan on how to reduce my future taxes, and give the banks more confidence in my numbers. Plus I'd rather give it to them for their service than give it to the government for their pensions...

My general understanding is, if you own one place, the rent is added to your income and any expenses are used as a deductible against your total income. So, if you only have losses this year, it's counted against your regular income. You should be able to write off the improvements (materials to bring it up to snuff), but not travel, tools, etc.


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## domelight (Oct 12, 2012)

nedstar said:


> I bought a rental condo a few months ago. Turned out it was in rougher shape than I thought and I have been 'refurbishing' it for the past few months. I'm trying to figure out my income tax situation for it. As there will be no rent this year there will be no rental income to write off against, it it was bought with the intention of renting out so I'm assuming I can write off expenses against my other income for 2013 (mortgage interest, condo fees, heat, repairs)?
> As for expenses, with it not being rented out what would fall under current expense and what would fall under a capital expense? Much of what I'm doing would be considered repairs. Mold remediation in the attic, replacing falling down drywall ceiling in the basement, redoing upstairs washroom (shower leaked, toilet leaked), painting, some electrical fixtures etc. Now these things are just bringing the property back to original state, not improving it. I will be putting in new flooring and possibly some new cupboards in the kitchen, soundproofing two walls which I would think would be a capital expense. This is a low end condo and I'm doing the work myself so we are talking about $5000-6000 total, with about $3500 in what I would call repairs/current expenses and maybe $2000 capital expenses/expenditures.
> Am I on track here or way off base? I had a screen name here years ago, but can't seem to log on as I no longer have the email address or password so re-registered with this one.
> I seem to be getting 125 dollar'ed to death at Home Depot every other day and am hoping I can at least write most of this stuff off.
> Thanks for any help anyone can provide!


 1. Any expenses you incur to bring the property to rentable condition will need to be capitalized.
2. You can claim expenses when you incur income. ie: claim your 2014 property taxes/utilities in 2015 when you have income. CRA may disallow these if you are not actively trying to rent the 
property, usually longer than a year is their guideline. 
3. You can not use cca if it creates or increases a loss.

Although I find it insulting to compare an accountant to the company you mentioned. I will provide you a link that you may find informative.

http://www.thebluntbeancounter.com/2011/08/income-tax-implications-of-purchasing.html


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## nedstar (Dec 8, 2014)

domelight said:


> 1. Any expenses you incur to bring the property to rentable condition will need to be capitalized.
> 2. You can claim expenses when you incur income. ie: claim your 2014 property taxes/utilities in 2015 when you have income. CRA may disallow these if you are not actively trying to rent the
> property, usually longer than a year is their guideline.
> 3. You can not use cca if it creates or increases a loss.
> ...


That is a good article thanks. Still somewhat confused as to some of your comments about claiming 2014 property taxes condo fees etc against 2015 income and not being able to write it off against other income this year. This, among other things seems contrary to what everyone else has said. I'm guessing judging by the varied responses here I could probably do it a number of ways and not raise any red flags, but who knows.


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## Guban (Jul 5, 2011)

Thinking about what domelight wrote, it does make a lot of sense to use the repairs as a capital cost rather than a current one. The money you put into the repairs does not put it into its original condition as the original condition was in a state of disrepair/leaking/broken/... If it was already ok when you bought it, then fixing it back to the ok state would be a current cost. I stand corrected.

I'm also not sure about domelight's 2014 property tax comment. Perhaps he/she is referring to you can't just keep on writing off expenses for a long time (more than one year), without having the hope of making (potentially taxable) income. Maybe CRA would look at this for a property speculator siting on a unit in hopes of making a capital gain.


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## domelight (Oct 12, 2012)

Guban said:


> Thinking about what domelight wrote, it does make a lot of sense to use the repairs as a capital cost rather than a current one. The money you put into the repairs does not put it into its original condition as the original condition was in a state of disrepair/leaking/broken/... If it was already ok when you bought it, then fixing it back to the ok state would be a current cost. I stand corrected.
> 
> I'm also not sure about domelight's 2014 property tax comment. Perhaps he/she is referring to you can't just keep on writing off expenses for a long time (more than one year), without having the hope of making (potentially taxable) income. Maybe CRA would look at this for a property speculator siting on a unit in hopes of making a capital gain.



, excuse the point form but I prefer it.

1. 100% of the costs you mentioned in your first post cupboards, mold removal, etc.. must be capitalized. It would be the same for most business assets" Cost's incurred to bring the asset up to 
standard must be capitalized"

2. You cannot report a business loss unless you have business income. So if you have no rental income in 2014 than you cannot claim the current expense amounts in 2014 against your other 
income.
IE condo fee's, utilities.

3. If in 2015 you begin to rent the condo out then now you have income. So now you can report expenses. Generally it will now be ok to claim 2015 income and expense, plus now add in 2014 
expenses as well. It is reasonable to assume you will now be in a loss. 
You will now be able to apply these loses against other income. However you cannot use cca (depreciation expense ) 
because "cca cannot contribute to a loss on rentals"

4. In order to claim the loss you have to be actively attempting to rent the property. (the unit is ready to go and there is an add in the paper)
CRA would define "Actively" as one year down time at most.
So what that means is if you incur expenses as noted above in 2014, then in 2015 you are lazy about renting the property and incur more expenses, then in 2016 you get around to having the 
condo rented and income coming in. Then CRA will likely allow the expenses from 2015, but NOT the expenses from 2014. More precisely it will be the twelve months prior to the point of 
actively attempting to rent the property.


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## nedstar (Dec 8, 2014)

Thank you. I'll use this as my guideline then.


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## Guban (Jul 5, 2011)

@domelight
I am concerned about statement #2, that you can not report a business loss unless you have business income. What if someone is actively trying, but is unsuccessful in finding a tenant? 
I am surprised by procedure of carrying forward current expenses to a year in which there is income. Hadn't heard of this before.


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## domelight (Oct 12, 2012)

Guban said:


> @domelight
> I am concerned about statement #2, that you can not report a business loss unless you have business income. What if someone is actively trying, but is unsuccessful in finding a tenant?
> I am surprised by procedure of carrying forward current expenses to a year in which there is income. Hadn't heard of this before.


 My comments are specific to the OP's scenario, however I stand by my comments in this regards. (and yes if you can prove you are trying to rent it out and can't then I would claim the loss beyond one year) however again you have to take a situation on it's own. are you trying to get to much rent ? there are scenarios where my comments may not apply. are you reasons for failing to rent the property "beyond your control" were the repairs completed in a "reasonable timeframe" both of these terms are contributing factors. and will have an interpretation.

Based on the scenario described with regards to carryforward expenses. I state this based on past experiences with CRA and am speaking in general terms.

What would be your opinion of the tax treatment for this scenario based on your interpretation of the act ???


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## Charlie (May 20, 2011)

Here's CRA's guideline which echos dome's comments on capitalizing amounts.

http://www.cra-arc.gc.ca/tx/bsnss/tpcs/rntl/cptl-eng.html

It does state, however, that to the extent property taxes, interest etc exceed rental income during the period of construction/renovations, then they too should be capitalized. There's no doubling up the deduction the following year.

So I think dome is technically right, with the exception of deducting 2014 taxes and expenses in 2015.

However, if this is one unit in a complex and given a $6K repair budget with work time being a few months I suspect administratively CRA would accept deduction of property taxes, interest and maintenance fees in the current year (even against no rental revenue). The repairs should be capitalized (after all the state of disrepair was reflected in the price), but I'm doubtful the scope of the work being done warrants capitalizing these current costs too. I'm not even convinced this would be an administrative position by them. 

The safest route would be to cap it all....but I think that's being excessively conservative here given my impression as to what was bought and what's being done.


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## Guban (Jul 5, 2011)

domelight said:


> My comments are specific to the OP's scenario, however I stand by my comments in this regards. (and yes if you can prove you are trying to rent it out and can't then I would claim the loss beyond one year) however again you have to take a situation on it's own. are you trying to get to much rent ? there are scenarios where my comments may not apply. are you reasons for failing to rent the property "beyond your control" were the repairs completed in a "reasonable timeframe" both of these terms are contributing factors. and will have an interpretation.
> 
> Based on the scenario described with regards to carryforward expenses. I state this based on past experiences with CRA and am speaking in general terms.
> 
> What would be your opinion of the tax treatment for this scenario based on your interpretation of the act ???


You (and your references provided) have convinced me that the repairs should be capitalized. It is reasonable since by repairing things, the owner is bringing the property up to a higher level than when it was acquired.

I hope that Charlie is correct about the property taxes, interest, etc. being used as a current deduction, however. The idea of expenses that have no lasting value being capitalized doesn't make sense to me. Then again, lots of stuff that governments do don't make sense.


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## nedstar (Dec 8, 2014)

Again, thanks for continuing this debate, it's making me feel less overwhelmed. I was somewhat uncomfortable with the thought of trying to write off 2014 expenses for 2015, and would think that what Charlie outlined would be completely passable. I'm guessing this is the way 90% of people do it and it's never given a second look.


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## nedstar (Dec 8, 2014)

Not sure if anyone can be bothered going back and reading this thread start to finish....but a quick update and followup question if someone would be so kind.
I ended up deciding not to rent the condo and after putting it back together/fixing it up ended up selling it with a closing date of February last year.
I never did write anything off (bought it in 2014) as I never rented it out and basically treated it as a "I might move in or rent it out at some point".
One thing I did do was take advantage of the first time home buyers credit, rightly or wrongly. 
My question is when filing 2016 taxes what are my options? I haven't run all the numbers in detail, but the selling price taking away including lawyers, realtor fees etc was just about equal to purchase price including lawyers fees, taxes etc. This is not including the cost of some of the renovations, flooring etc, which would take me to a loss. My instinct is that I can't write those captial costs off and make it a loss. Is this correct? Thanks for any help you can provide.


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## nedstar (Dec 8, 2014)

Ok....I guess I'll just wing it ?


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## Spudd (Oct 11, 2011)

I think the way it works is your capital expenses add to your ACB. So if you paid 100k for the unit and spent 20k on capital expenses, your new cost is 120k. If you then sell the unit for 100k, you have a capital loss of 20k. 

But I took a quick glance back at your earlier posts and it seems like you already wrote off some of the renovations as current expenses, so be careful not to double-count them.


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## nedstar (Dec 8, 2014)

No haven't written anything off as I never rented it or attempted to rent it out. I didn't think it was allowed to take a capital loss on a property that may as well have been considered a bad flip


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## Spudd (Oct 11, 2011)

You would have had to take a capital gain if it was a successful flip so it's only fair.


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## nedstar (Dec 8, 2014)

Ok thanks.....fair and taxes I always thought were oxymorons ;-)


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