First, you need to find the property that suits you and your goals. There are a few ways you can do this. You could go the old-fashioned way, looking at published advertisements or by word of mouth, you can browse the internet to find properties or talk to a professional.
A good general indicator is to figure out the property’s cash flow. Understanding cash flow is vital, especially if you’re buying your first rental property. In its simplest form, it is the rental income minus monthly expenses. A positive cash flow means more income is generated than the expenses being used. A negative cash flow means the opposite. Obviously, you should aim for positive cash flow.
Yes, in fact, one of the benefits of rental properties is that many expenses are tax deductible. Among the many expenses that are deductible is interest. You can deduct interest on loans and on credits used to buy resources for the property. You can also deduct repairs. It’s important to emphasize that repairs are not renovations. Expenses that allow the property to function can be deducted. Expenses used to enhance the property cannot. Homeowner Association and Condo fees are also deductible.
Many other deductible expenses include insurance, legal fees, employee wages, and depreciation.
You might acquire a depreciable property, such as a building, furniture, or equipment, to use in your rental activity. However, since these properties may wear out or become obsolete over time, you can deduct their cost over a period of several years. The deduction is called capital cost allowance (CCA). Claiming CCA sounds great but may not be the best option for everyone.
It may make sense to convert your principal residence to a rental property. Perhaps you are moving out and want to earn some rent, or perhaps there is a tax advantage of changing the use of your principal residence. Regardless of the reason, be sure to follow the rules set out by the Canada Revenue Agency and the Canadian Income Tax Act to avoid any headaches.
A.M.I. CPA Professional Corporation can discuss with you more details on rentals, tax breaks, investments, and cash flows so you make an informative decision.