# deductions on a non-profitable rental property?



## WalleyGirl (Mar 23, 2013)

Sorry to repeat my story, but in case you read this before my other thread...

We live in a small acreage and have the opportunity to purchase the next-door neighbour's property, same size acreage as ours. We will rent out one of the homes with about an acre of land around it, and use the rest of the acres for ourselves, living in the other house. We do not consider this an investment property and realize that we won't be making any profits. The rent will be more like a mortgage helper, allowing us to double the size of our acreage without doubling our mortgage payments. 

In reading through CRA stuff I see that, given we cannot expect to "rent for profit" this way, we will not be able to deduct losses from our taxes. But can we still claim deductions for such things as mortgage interest, property taxes, home insurance, maintenance and repairs, etc? 

Does the rental income count as taxable income? And if so, won't this effectively increase our taxable income? Will the aforementioned deductions offset this increase? It would kind of suck to have to claim income on rent that doesn't even cover the property costs...

TIA.


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## Potato (Apr 3, 2009)

What will you be using the acreage for? If it's for a farming business, then the rental house isn't the only income the property will generate.

As for your accounting questions, you'll deduct expenses (interest, property taxes, insurance, etc) from the rental income as you would expect. If you come out with a profit, then you report the profit on your taxes. If it's a net loss, you say that there is no expectation of profit (the rental house is a loss-making side effect of your leisure acreage), and don't report any of it.


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## WalleyGirl (Mar 23, 2013)

It's not for a farming business. Just personal use. 

When you say "don't report any of it" do you mean don't try to claim the loss itself? Or do you mean don't bother reporting the rental income and deductions?


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## MoneyGal (Apr 24, 2009)

Potato said:


> As for your accounting questions, you'll deduct expenses (interest, property taxes, insurance, etc) from the rental income as you would expect. If you come out with a profit, then you report the profit on your taxes. If it's a net loss, you say that there is no expectation of profit (the rental house is a loss-making side effect of your leisure acreage), and don't report any of it.


Well....not exactly. The test of whether it is taxable income is not whether there is a reasonable expectation of property - that's the test of whether it is rental income. This is actually a separate question from whether the income is taxable or not. If there is no REOP, that does not mean that the income earned is not taxable in your hands. The safer route would be to take expenses against the income which reduce it to zero. HOWEVER I recommend professional advice and not relying on this very quick and impersonal review of the situation.


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## Cal (Jun 17, 2009)

Yes, call an accountant and make an appointment to discuss your intentions and options.


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## NorthKC (Apr 1, 2013)

That's always a touchy subject if you're not intending to make a profit. Generally, you should report the income, deduct expenses and show that it's not profitable just in case the CRA comes back and say that it was a profit and you have no papers to prove it. Definitely consult an accountant on this to make sure you're on the right path.


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