Maximize Your Savings with Basement Rental Tax Deductions

Taxes are part of owning a property. The roads, sidewalks, and other local amenities have to be paid for somehow, and most municipalities rely on property owners to foot the bill. But what if there was a way for you to reduce the sting at tax time? This blog will go over available basement rental tax deductions, the expenses you can use to lower taxes owed on rental income, and a few missteps that can bring a tax assessor to your doorstep.

Basic Types of Basement Rental Tax Deductions

If you’ve set up your basement for a renter, planned your renovation, advertised your space, interviewed potential tenants, and drafted a lease, you should know there are ways to reduce the taxes you owe on your rental income.

There are two main types of deductible expenses: current and capital.

1. Current Expenses: These expenses are claimed in the year they’re incurred and typically reoccur. They include things like repainting, replacing small fixtures, or repairing electrical issues. Current expenses help maintain or restore the property’s original condition.
2. Capital Expenses: These expenses are claimed over several years and include major renovations, like replacing wooden steps with concrete ones or purchasing a major asset, such as a new appliance. Capital expenses generally improve the property and extend its useful life.

How to Determine Expense Type for Basement Rental Tax Deduction

The Canada Revenue Agency (CRA) has specific criteria for categorizing expenses:

• Does the expense provide a lasting benefit?
• Is it maintaining or improving the property?
• Does it involve a part of the property or a separate asset?
• What is the expense’s value?
• Was it incurred to make a newly acquired property usable?
• Was it used to repair an asset for sale?

Deductible Expenses for Basement Rentals

There are many tax-deductible expenses that landlords can use to lower taxable rental income. Here are some common ones:

• Utilities and Insurance: Utilities like electricity, gas, water, and even internet or cable can be partially claimed as business expenses. If you cover these costs, the renter’s share can be deducted. Similarly, home insurance can be partially written off. For example, if a quarter of your home is rented out, you can claim 25% of the insurance as a business expense over the term of the policy.
• Maintenance and Minor Repairs: Routine maintenance and repairs, such as fixing a leaky faucet or replacing damaged flooring, are deductible because they keep the property functional. Hiring a professional for these jobs allows you to deduct both labour and materials. However, if you do the repairs yourself, your labour costs are not deductible.

Understanding the tax benefits of basement rentals can make property ownership more rewarding. By staying organized and informed, you can minimize your tax liability and maximize your rental income. For comprehensive advice on how mortgage solutions and tax planning can work in your favour, contact MonsterMortgage.ca to explore your options and make the most of your investment.

Maximize your rental property’s potential with expert guidance. Reach out to MonsterMortgage.ca today for tailored advice and support: https://monstermortgage.ca/contact/