# What are the benefits of claiming CCA on my Rental House?



## davidjean (Mar 27, 2014)

Good day everyone, 

Can someone explain the benefits of claiming depreciation on my Rental House?

It seems to me that claiming depreciation might help me save on taxes for this tax year, but then I'll have to make up for the tax savings when I sell my Rental Property down the road. 

Am I correct that claiming a depreciation will lower the ACV of my house so that when I sell I'll have to pay more in Capital Gains tax?

Does anyone here claim depreciation on their Rental House?

Any help would be appreciated.


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## kcowan (Jul 1, 2010)

CCA is at 100% tax relief, while capital gains recapture is at 50%. So you can defer taxes as long as you rent.


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## MoneyGal (Apr 24, 2009)

CCA provides current tax relief at the expense of future tax exposure. It works if you are in a situation of tax arbitrage: you are getting tax relief when you have higher taxable income, paying taxes later when your total taxable income is lower (i.e., sell during retirement). 

All other factors held constant, deferring taxes is always preferable (because a dollar payable tomorow is "worth less" than a dollar payable today).


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## Green (Mar 25, 2014)

Depreciating a rental house makes sense if one has an old house on a good lot.
Depreciate the house to $0, keep renting until the house is run down.
Tear the house down, change it to own use, to trigger a disposition.
and build your house on it. 
Or 
keep renting it out and don’t buy a house insurance. Depreciate the house to $0.
If the house burns down, do the same as above. 
If the house doesn’t burn down, transfer the ownership to a relative, bit by bit to avoid 
high tax bracket.


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## davidjean (Mar 27, 2014)

kcowan said:


> CCA is at 100% tax relief, while capital gains recapture is at 50%. So you can defer taxes as long as you rent.


Is this actually true? Seems too good to be true. I'm allowed to write of depreciation as a 100% tax relief and then only pay capital gains tax (50%) when I sell the house?

Can anyone else confirm this for me or show me a link ? 

Seems like a great decision to claim depreciation. Does everyone else do this?


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## kcowan (Jul 1, 2010)

I did it on software for many years. Write-off 100% against income. On equipment, I was left with recapture upon disposition. But usually that was just pennies on the dollar. Whereas RE is likely going to increase.


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## OptsyEagle (Nov 29, 2009)

davidjean said:


> Is this actually true? Seems too good to be true. I'm allowed to write of depreciation as a 100% tax relief and then only pay capital gains tax (50%) when I sell the house?
> 
> Can anyone else confirm this for me or show me a link ?
> 
> Seems like a great decision to claim depreciation. Does everyone else do this?


No, this is not true. The recapture of CCA is in the form of income not a capital gain. Unless you are in the highest tax bracket today, I would think about not taking this deduction. You cannot really depend on being in a low tax bracket in retirement, since you may want or need to sell the house before retirement, and/or the capital gain and CCA recapture of the property may very well push you into a much higher bracket in that one important year that you sell, if the property has risen in value significantly.

Even in the highest bracket, it is a little like RRSPs. You will get your deduction today and pay tax tomorrow. People who contribute to RRSPs think they are great and people RRIFing or withdrawing from RRSPs, usually think they were some kind of big mistake. This response does not come from the math of these programs, but from the human behaviour and emotional reaction to them. From the timing of the benefits and the costs.

The math works in favour of RRSPs and sometimes CCA, but human behaviour says that the benefit you get today, will be long used and forgotten by the day you get to pay the costs, when you sell. I guarantee on that day, you will say "I am not sure it was a good idea to take CCA on my rental property", even if the math looked good back when you did it.


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## davidjean (Mar 27, 2014)

*Perfectly said*



OptsyEagle said:


> No, this is not true. The recapture of CCA is in the form of income not a capital gain. Unless you are in the highest tax bracket today, I would think about not taking this deduction. You cannot really depend on being in a low tax bracket in retirement, since you may want or need to sell the house before retirement, and/or the capital gain and CCA recapture of the property may very well push you into a much higher bracket in that one important year that you sell, if the property has risen in value significantly.
> 
> Even in the highest bracket, it is a little like RRSPs. You will get your deduction today and pay tax tomorrow. People who contribute to RRSPs think they are great and people RRIFing or withdrawing from RRSPs, usually think they were some kind of big mistake. This response does not come from the math of these programs, but from the human behaviour and emotional reaction to them. From the timing of the benefits and the costs.
> 
> The math works in favour of RRSPs and sometimes CCA, but human behaviour says that the benefit you get today, will be long used and forgotten by the day you get to pay the costs, when you sell. I guarantee on that day, you will say "I am not sure it was a good idea to take CCA on my rental property", even if the math looked good back when you did it.


Wow!! You're an eloquent writer. This is exactly what I thought and the reason why I haven't claimed CCA over the past 7 years of owning a rental house.
This is also the reason I don't buy RRSPs. Thanks for your help.


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## Taraz (Nov 24, 2013)

Green said:


> Depreciating a rental house makes sense if one has an old house on a good lot.
> Depreciate the house to $0, keep renting until the house is run down.
> Tear the house down, change it to own use, to trigger a disposition.
> and build your house on it.
> ...


Indeed. Slumlording is often the most profitable type of landlording....


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## getliquid (Mar 2, 2014)

assuming im in the highest 43% bracket today and will still be in it till I retire, wouldnt it make sense in my case to claim CCA yearly since its like borrowing at 0% and investing it? When I sell my rental I will take the extra income out and keep the profits from all the years of investments?

I still don't know how to figure out the portion value of my builidng though, class 8 is 4% on value of building no counting the land... how am I suppose to know how much my building is worth?


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