If you are going to go into the rental business you should also be prepared to keep meticulous records if you don't want the taxman to exclude any of your expenses. .
There are various scenarios:
1) you live in the house and rent part of the home out
2) you own a condo and rent it out part of the year
3) you own a condo and rent it out for all of the year
4)You rent out the whole house to one or more tenants.
First, buy a cheap Hilroy spiral notebook and put all your receipts pertaining to the rental properties in that book. It would be a good idea to staple or tape it on each page with a small explanation of what the product is. At the end of the year, you will have every receipt in one place. Depending on your bills, you may find that you need more than one book. Another way to keep your receipts organized is to keep an Index at the back of the book. Number all the pages starting with 1. As you tape each receipt on the back put a brief description, the total amount of that specific receipt and the page number where you can find it. I use this index to enter the information at the end of the year in an excel spreadsheet and then add them up automatically. .
In addition to the regular expenses such as, electric, heat, water, property taxes, house or condo insurance, you can also include interest paid on mortgage payments.
If you keep a small office in your home, office expenses are allowed if it pertains to keeping records for your rental property. If the office is off site and in your house, all the house expense receipts should be kept. The portion of the room as compared to the rest of the house will determine what percentage of your bills can be claimed as office expense. The easy way to do it is to take the square footage of the office area divide it by the total square footage of the house and multiply by 100. This is the percentage of the bills you may claim
Example:
The house is 1500 sq. feet. The office is 500square feet. (500/1500) = .33333 *100= 33%
You may claim 33% of all your household bills except for telephone unless you have a separate line for your office. Then it would be 100% of that telephone bill. Your household bills would include: property taxes, house insurance, heating, hydro, water.
Your office expenses( of which you could claim 100%) would include:
Paper, printer and other office supplies- pens, staples, scotch tape, ink jet or laser jet toners. Lighting, desk, chair, pad on the floor, filing cabinets, file folders, file holders etc.
Computers ( Class 10) you can claim 30% depreciation. Fax machines, you can claim 20%.
Any tools or furniture or appliances costing less than $500 can be claimed at 100%. Anything over $500 you can claim depreciation of 20% ( class 8)
In Canada, CRA site of the different classes and depreciation levels can be found on http://www.cra-arc.gc.ca/tx/bsnss/tpcs/slprtnr/rprtng/cptl/dprcbl-eng.html.
In the US information on the calculation of the depreciation of properties and rates is found at http://www.irs.gov/publications/p946/index.html
Other expenses are background checks, Purchase of lease forms, Legal advise, the cost of Tribunal proceedings and evictions , repair work , collection fees and advertising fees.
If you use your car to drive to the rental properties you can claim a portion of these expenses. Car insurance, gas, car wash, license fee, depreciation, and if you have a loan, interest on that loan, and if you are leasing, lease payments. The way that s calculated is usually done by kilometers or miles.. If you drive 20,000 km or mi per year and 5,000 of those miles or km relate to the rental property the you would use the same formula as the home expenses. 5,000/20,000 =.25 *100= 25% of all expenses.
If you use an accountant to do your taxes, his fees would also be tax deductible.
If you furnish the apartment, depending on the cost of the items they could be discounted 100% or you can claim depreciation expense. If the item is worth more than -
What is important is to keep all those receipts. The more organized you are, the cheaper the cost to do your taxes. Without those receipts the accountant and the tax man can disallow your expenses. By taping or stapling the receipts in the book, you will never lose them and they will be at your fingertips. Heaven forbid you should be audited, but if you were, you would be able to substantiate your expenses with the relevant receipts.
My advice: If this is the first time you are renting out property, have a specialized tax specialist do your taxes the first year. Compare what he does to the list I just gave you. Make sure he/she covers everything. Some good tax specialist will offer information and will ask a lot of questions as they are trying to do the taxes in your favor. If you deal with someone that does not ask too many questions, you may be dealing with someone that doesn't want to work too hard for you. But if you supply all the receipts, be prepared to ask if any of them are not used and why, especially if they have been mentioned here.
Another tip is to use a credit card that you devote solely for the expenditures that pertain to the rental units. You still have to keep detailed receipts so that the reason for the expediture is clear.
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