QUESTION:
I have recently bought a house in Victoria for $250,000 which is my
principal residence. With a mortgage payment of roughly $1500 / month,
would it be beneficial for me to rent out the other 3 rooms at $400 / room
and declare the rental income? If I did this, what would I then be tax
deductible with regards to expenses. More specifically, what portions of
those expenses would I be able to deduct. Would this be worth it
financially or would I just end up paying more in the end?
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david ingram replies
If you received $400 month rent for 12 months you would have $4,800 more to
spend.
Even is nothing was deductible and you had to pay 33 1/3% taxes, you would
still have $3,200 left in your pocket to spend. If you rent out three
rooms, you will have about $9,600 left to spend at a minimum.
However, if you have expenses as described, you can deduct a pro-rate
portion of the taxes, mortgage interest, heat and light, cable and
landscaping and repairs and maintenance.
If the house is 1,500 square feet and you rent out 600 square feet, you can
deduct 600/1500 x's the mortgage interest, the taxes, etc. You can NOT
deduct percentages of common rooms where you use the room yourself. So even
if three people plus yourself use the living room, you can NOT deduct part
of the living room.
You would file from T776 and attach it to your regular Canadian Tax return.
The amounts from The T776 is put on line 126 of the T1 General.
Because this is a US / Canadian Newsletter, the reply would be the same for
the USA except that the American would attach schedule E to his or her 1040
tax return.
Answers to this and other similar questions can be obtained free on Air
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