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My question is: Canadian-specific
QUESTION: A client and his father own a home. In 2002 they renovated/repaired the home to make it available for rent in 2003.
Can they claim the expenses incurred in 2002 (capital & current) against the rental income earned in 2003. There were also utility costs/property taxes/house insurance costs from 2002 to keep the house heated, insured & taxes up to date. Can these be claimed in 2002??
What about a home office that the son uses in his own residence to do his paperwork etc. for the rental?
Much appreciated.
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david ingram replies
Good question and a common one.
If the house was not rented prior to your expenditures, every cent spent while getting it ready to rent is applied to capital and can NOT be deducted against other income.
This means that you add the value of your repairs and improvements to the cost of the house. The total value can then be depreciated under class 1 at 4% per year on the diminishing balance up to the amount of rental profit. In other words, in Canada, you can NOT use depreciation (or as the CRA calls it, Capital Cost Allowance or CCA) to create or increase a rental loss.
Record keeping offices for the rental of a single property is not a deduction unless it is your principal place of business and you have clients to your office.
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