Items that can be declared for income tax?

I am renting a room to someone, and would like to know whether purchases I am going to make (ie. locks, doors, etc) while the individual is not renting can be used to income tax. This individual will again return in September, and want to know whether purchases made towards improving or enhancing the rented room can be counted in income tax when the renter is not present.

Or should I wait until the renter is renting, and then make the purchases so that I can declare them for income tax?

Land property tax, is that also only income tax applicable only for the months while the room is rented?

As long as the purchase has anything to do with renting out your unit, then you can claim it in your income tax as an expense related to that income. It shouldn't matter whether or not it's currently empty, because sometimes you lose tenants and it takes sometime before you can find another one. Your income taxes are paid on an annual basis, so you should consider your rental income over an annual basis as well. If you don't happen to have a tenant at any point in time, you simply are not earning any rental income for that period.

Hope that helps..

Originally Posted by hot_potato

As long as the purchase has anything to do with renting out your unit, then you can claim it in your income tax as an expense related to that income.

Yes.

And no.


If you do not want to pay capital gains on the sale of the house, the only items you can deduct are items that are replacements for existing pieces, and are replacements of the same quality and do not increase the value of the home.

For example, if your old wood deck is rotting and you replace it with PVC. You can not write this off, because the PVC deck increases the value of your home, and if you write it off, it is a Capital Cost.

Now, this is a debateable issue when it would come to say, laminate vs. carpet (Both pretty much cost the same, carpet might even cost more) to replace old carpets. And it's going to come down to the audtior (If you ever get audited) to determine whether it is a capital cost or not.

You should be able to deduct small stuff such as hardware and minor renovations. Anything significant or that represents increased functionality would probably be a capital outlay, that might be depreciated. However, as noted if you depreciate the building costs or any capital improvements to the buildind, you will not be able to claim that portion of the building as your principal residence on an eventual sale.

As far as deducting operating costs such as municipal property taxes and utilities while there is no tenant occupying the room, you should be able to, provided that the room is available to rent, say perhaps to a summer student. You don't want it to appear that the room could be used by yourself while the main tenant is away.

You also don't want to report a big rental loss. The CRA was hunting down such claims a few years ago until a couple of court cases set them back. Unfortunately the government wrote new tax rules that give them greater power to deny rental and other losses, so they will be on the hunt again to audit such claims.

April 6 update. GWB. You've asked several questions in your post below. I'll try and respond in at day or so. TG.

"Anything significant or that represents increased functionality would probably be a capital outlay, that might be depreciated. However, as noted if you depreciate the building costs or any capital improvements to the buildind, you will not be able to claim that portion of the building as your principal residence on an eventual sale."

You mean - if I purchase, say new doors for the rooms and the main house, these are considered significant improvements? I am going to spend about $600 for two doors on the main entrance of the house - and this should not be reported?

What significant improvements or purchases in the house will represent functionality?

You mentioned that if I depreciate the building costs... how can one depreciate a house cost when renovating, purchasing things the renter(s) will use? So - depreciating the building by renovations and purchases is possible? How is that possible?

What about improvements to the house? Do improvements to the house also depreciate the house and I will not be able to claim that portion of the building as your principal residence on an eventual sale?

So, I bought a house worth $200 000 and if I want to sell this in 5 years for $250 000 - I will be penalized and treated differently even if the house is in excellent and better condition that I have purchased evne if I have rented two rooms in the house?

So, if I upgrade the doors for the rented rooms with locks and nice windows, that is considerend a capital gain and should not be written for income tax?

So, upgrades to the house to benefit the renters will be considered capital gains and I will be taxed on that??? How many times does one need to be taxed on top of the tax on the rent I am receiving on the services I am providing?

The capital gain only deals with NEW items I am purchasing - but not replacements?

I am buying the following materials for the renter, and think I can write this off in for income tax, are these all ok without a capital gain? Can I put these on the imcome tax without getting into this capital gain thing...? WTF... it does not make sense... now the government is also dictating me what to buy and how to renovate the house...

1 - gas / heat / water/ electricity
2 - laundry material (soaps, bags, detergent, cleaning liquids, etc)
3 - telephone / TV / internet
4 - replacing main entrance doors
5 - replacing rented room door
6 - kitchen utensils and dishes for the renter
7 - flowers pots and plants
8 - desk / bed / mattresses
9 - modem / router for internet / cables & wires
10 - clothers hangers / shoe rack / storage desks & cabinets
11 - DVD rentals (used by everyone in the house)
12 - new ventilator in the kitchen
13 - stove or range, microwave and fridge (bought a few months before renter moved in)

Originally Posted by George W. Bush

You mean - if I purchase, say new doors for the rooms and the main house, these are considered significant improvements?

If the doors are replacements for existing ones, and the doors are of equal types then yes, you can deduct them. So if you replace existing wood interior doors with new wood interior doors, you can deduct that.

If the doors are an "upgrade" from what you have (Solid metal door to replace old wooden door, double french doors to replace existing pocket doors, etc....) and increase the value of your home, then it would be a capital cost (Which you want to stay away from on your primary residence).

What significant improvements or purchases in the house will represent functionality?

If you upgrade a wooden deck to PVC, if you upgrade a wooden fence to PVC, if you upgrade a carpetted floor to real oak hardwood, etc.... Those are all capital costs since they are not replacements, but are upgrades.

You mentioned that if I depreciate the building costs... how can one depreciate a house cost when renovating, purchasing things the renter(s) will use? So - depreciating the building by renovations and purchases is possible? How is that possible?

Depreciation means depreciating the value of a house.

In accounting, you are able to depreciate an asset - because every asset has a lifespan.

For example, your company may depreciate your computer over a 5 year period, at the end of which is has a $0 value.

Depreciating that computer creates certain tax situations that are beneficial to the company.

The downside to depreciation is that if the computer, which is now worth $0 is now sold for $1000, that $1000 is now considered income and is taxed.

See where the problem lies with your house?

Yes you can depreciate it - but since it'll sell (most likely) for more than you paid, you'll end up paying taxes. A lot of taxes.

Now, you can depreciate any "asset" in your house - but the same goes for the asset as it would for the house (As once you depreciate your house, it no longer falls under the tax rules of a primary residence).

What about improvements to the house? Do improvements to the house also depreciate the house and I will not be able to claim that portion of the building as your principal residence on an eventual sale?

I believe this is covered up top, but to clarify:
- If you deduct improvement to the home as Capital Costs (Such as say, putting cedar shakes on your roof over your asphault singles), it no longer falls under the guise of your "primary residence" which means you will pay Capital Gains tax when selling (Or deduct a capital loss)
*Note - I am pretty sure that once you step into the realm of capital costs it will affect your home as well - but you'll want to double check that.

So, I bought a house worth $200 000 and if I want to sell this in 5 years for $250 000 - I will be penalized and treated differently even if the house is in excellent and better condition that I have purchased evne if I have rented two rooms in the house?

You can not use renters to significantly upgrade your house and then turn around to sell it for a profit (With paying capital gains).

If you do not deduct any capital costs, then you will pay no tax when you sell the home. If you deduct capital costs, depreciate the home, etc, etc... you will then pay capital gains on the sale (or receive capital losses).

So, if I upgrade the doors for the rented rooms with locks and nice windows, that is considerend a capital gain and should not be written for income tax?

If you upgrade the 30 year old, standard double pane windows to argon filled triple pane (Let's assume those are the best windows available) then it would be considered a capital cost.

Anyone will tell you that by upgrading your windows to triple pane argon filled windows (Again, assume best available) you are increasing the value of your home, and it's not just normal maintenance.

Which means it is a capital cost.

If you chose to make capital cost deductions, you will most likely have to move from the status of having your property defined as a "primary residence" and it will become a "capital property" (Again, I believe that once you make a capital cost deduction on the house, the house itself is now subject to the rules of this as well. I could be wrong, but quite frankly, in my situation I won't be making any capital deductions so I haven't researched it much).

As for the locks on the doors - you could argue (And it makes sense to me) that you needed to added those locks on the doors for renters, and the only reason they were added is because of the renters. In which case, 100% of the cost is a tax deduction.

However, upgrading the windows is not necessary to attract renters.

So, upgrades to the house to benefit the renters will be considered capital gains and I will be taxed on that??? How many times does one need to be taxed on top of the tax on the rent I am receiving on the services I am providing?

A general rule of thumb is that ANY renovation to the house that is considered an upgrade and increases the value of your home is considered a capital cost.

Let's face it - why should you receive a tax deduction to upgrade your kitchen to granite countertops?

The capital gain only deals with NEW items I am purchasing - but not replacements?

Capital Costs only come into play for items (new or used) that are considered UPGRADES (Example - buying granite countertops to replace laminate ones). It will also come into play when doing something that wasn't there before - installing a deck when one didn't exist, etc...

I am buying the following materials for the renter, and think I can write this off in for income tax, are these all ok without a capital gain? Can I put these on the imcome tax without getting into this capital gain thing...? WTF... it does not make sense... now the government is also dictating me what to buy and how to renovate the house...

It makes perfect sense.

You can not claim a tax deduction to increase your property value.

Or else you'd have renters, renovate a house, sell, and keep the cycle going to receive the tax deductions for renovating the house.

1 - gas / heat / water/ electricity

You can claim this for the percentage of the house that is declared used by tenants (So in a 2 bedroom house, you can typically say that you rent out 50% of it).

2 - laundry material (soaps, bags, detergent, cleaning liquids, etc)

If you specifcally state you include this in your rent, then yes, whatever the renters use is a tax deduction.
*This one would be a grey area - I don't believe many people get into this kind of detail. Remember - it's up to the auditor to determine if it's legit and comes down to it.

3 - telephone / TV / internet

You can claim this for the percentage of the house that is declared used by tenants (So in a 2 bedroom house, you can typically say that you rent out 50% of it). Provided that the tenants are allowed to use these services.

4 - replacing main entrance doors

Replaced with an "equal" door? Yes.
Replaced with an upgraded door? Capital cost - so typically no.

6 - kitchen utensils and dishes for the renter

Purchased specifically for the renter? Yes
Purchased for you and the renter? A percentage
*This one would be a grey area - I don't believe many people get into this kind of detail. Remember - it's up to the auditor to determine if it's legit and comes down to it.

7 - flowers pots and plants

I would assume that you can't write off this sort of stuff.

If you were replace an existing spruce tree that was dying with another - maybe.
If you just plant flower to improve the appearance? No.
*This one would be a grey area - I don't believe many people get into this kind of detail. Remember - it's up to the auditor to determine if it's legit and comes down to it.

9 - modem / router for internet / cables & wires

You can claim this for the percentage of the house that is declared used by tenants (So in a 2 bedroom house, you can typically say that you rent out 50% of it). Provided that the tenants are allowed to use these services.

You can claim 100% of the cost if it's soley incurred for a tenant (Running the cable to their room would be an example).

5 - replacing rented room door
8 - desk / bed / mattresses
10 - clothers hangers / shoe rack / storage desks & cabinets

Expense incurred as a direct result of renting the room? Yes
Done to upgrade the value of the home? Capital cost - so typically no.

11 - DVD rentals (used by everyone in the house)

This is in no way an expense incurred because of renters.

Unless in your lease you specifically state that movies would be made available every Friday for viewing I can not see how this would throw red flags.

You can't deduct entertainment expenses. Let me guess - next on the list is that you ordered pizza and want to write it off?

12 - new ventilator in the kitchen

Direct replacement for existing one? Yes
New one (None existing previously), or an upgraded one? No - capital cost.

13 - stove or range, microwave and fridge (bought a few months before renter moved in)

Bought after the renters moved in? Typically no.


Remember, that if there is ANY grey area and there comes time for an audit, things can go either way as it's up to the auditors discretion if it's a deduction or not. Your accountant will give you his advice, however it is not guarenteed to be the same as the auditors judgement.