One thing that many property owners may not realize says Edmonton bookkeeping. Is that the income they receive from renting their property out. Is considered personal income by Canada revenue agency.
This is something that people typically do not understand until they owned their rental property for a year, and have gone through their first tax return. They often think that it should be considered business income. Or that they have to incorporate, or file their taxes as a sole proprietor. And luckily this is not true.
However, there is an exception to this. If people are providing and then charging for additional services, that no longer is considered personal income. But instead a business. Such as a person writing cleaning services for additional fees, landscaping like mowing the lawn, or shoveling the walk for additional fees.
Or if a person is renting out a room or more in their own home. They might provide meals at an additional cost. And this is then considered a business. So it does not matter how many rental properties a person owns. What matters is the fact that they are not charging for additional services.
Some people may wonder if including utilities and the price of rent, and increasing rent to cover that cost would be considered additional services but this is not the case.
In fact, utilities can be a rental expense that they can deduct off of their personal taxes. As long as the property owner has specified in the rental agreement. That they pay for the utilities. This is even true for people who are renting out room in their home.
However, Edmonton bookkeeping cautions these property owners. That if they are claiming their utilities after renting out one or more rooms in their home. They still need to claim just a percentage of their utilities as a rental expense.
And that the percentage that they are claiming is under 50%. Otherwise, they will lose their principal deduction of their home on their taxes. Which has far more negative implications on their taxes. Then they would gain by claiming the entire utilities on their rental expense.
And when it comes to utilities. Many people assume this simply means the gas, oil, electricity and water. But this is not the case. They can include things such as cable, Internet and even the landline. As long as it is specified in the rental agreement.
However, Edmonton bookkeeping says maintenance and repairs are not considered an additional service. And they cannot charge their renter to pay for the cost of repairing the property. Therefore, if the property owner is painting the inside or outside of the home, replacing flooring or carpets. And even patching holes in the ceiling or the walls. This is considered routine maintenance that is necessary on the property.
By understanding that rental income is considered personal income. And that means rental expenses can be claimed on their income tax. Can help property owners minimize their taxes as much as possible. As long as they are remembering the exclusions.
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Many people who are purchasing a rental income for the first time says Edmonton bookkeeping. May not realize that the money they taken from their renters is considered personal income.
Especially if the reason why a person has a property that they are renting out. Is because they have been unable to sell their old home. Before moving into their new one. They may rent out their property, to avoid taking a loss on the mortgage.
They often only find out at the end of the year when Edmonton bookkeeping is doing their personal tax return. That they can claim a wide variety of rental expenses on their taxes. Because the money that they brought in from renting out their house. His personal income.
If people know this ahead of time. They will be able to keep the receipts they need to be able to claim as many expenses as possible. Especially since there may be a wide variety of expenses that they may not realize can be claimed.
A great example of this, is if a person who owns a rental property needs to hire a management company, or simply a person to manage their property. Especially if they live far away. The feast of that company, or the wage they pay that person. Can be deducted off of their personal taxes.
Even if they need to to hire a broker to find a renter for them. And the broker charges a finders fee. Even that finders fee can be considered a rental expense that they can claim.
When it comes to people, it may also be necessary for a property owner to hire maintenance personnel. Whether on a project by project basis. Or, if they are going to hire them on an ongoing basis. The salary for these maintenance people or superintendents will be considered expenses they can claim.
Edmonton bookkeeping says that if they are employed on an ongoing basis, even the benefits that they can get from the property owner could be considered a rental expense as well.
And when it comes to doing the maintenance, property owners should keep in mind that they can include the cost of the labour as well as the materials for doing minor repairs. But the repairs cannot extend the life of the rental property. In order for it to be claimed as a rental expense.
A great example of this says Edmonton bookkeeping. Is that a property owner can patch a hole in their roof. And that would be considered maintenance and repairs. But if they put on an entire new roof. That would be seen as extending the life of their rental property. And not be claimable.
It is good to note however, that if it extends the life of their rental property. Even though they do not get to claim that as of rental expense. It will increase the value of their property. Adding to the property owners overall assets.
A can be very confusing for people who are owning rental properties for the first time to understand rental expenses. Which is why many will opt to employ Edmonton bookkeeping to do their personal taxes. So that they can avoid making errors that might end up being very costly.