What expenses you can deduct when you rent your house to someone

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When you rent out one or more rooms in your house, or if you own a rental property, there are many expenses that can be deducted in calculating your net rental income. These expenses include mortgage interest (but not principal), property taxes, utility costs, house insurance, maintenance costs, advertising, property management fees, landscape cost and legal and accounting fees.

Accounting method
Rental income and expenses can be recorded using the cash basis of accounting, unless the property rental is considered business income, in which case the accrual basis of accounting must be used.

What you can deduct
When you rent out only a portion of your home, you would only be able to deduct a portion of the costs. For example if you rent out only 20% (1 of 5 rooms) of your house you can deduct 20% of the following: utility, property tax, mortgage interest, house insurance, landscape and 100% for the cost incurred for the maintenance of the specific room.

Maintenance
If you pay for repairs to your property, you can deduct the cost of labour and materials. However, you cannot deduct the value of your own labor.

Landscaping costs
You can deduct the cost of landscaping the grounds around your rental property only in the year you paid the cost, even if you use the accrual method for calculating your rental income.

Legal and accounting fee
You can deduct fees for legal services to prepare leases or collect overdue rents.[1]

Capital cost allowance may be deducted as well. For this you should speak with your accountant.

For more information you can contact me by e-mail at info@cpa4toronto.com


Tax tip: Keep accurate and complete records

Nicole Dronca, Accountant and Tax Preparer

 

[1] http://www.cra-arc.gc.ca/E/pub/tg/t4036/README.html