renting out the basement income/tax question

[fishtank]

something new to add to my tax this year , got a question about how to fill out the tax form about income from renting out the basement , would it be added as my personal income or a separate income category ?? would call the accountent that does my tax , but its been voicemail/answering machine all day .

[Clgy_Dave2.0]

Originally Posted by fishtank

something new to add to my tax this year , got a question about how to fill out the tax form about income from renting out the basement , would it be added as my personal income or a separate income category ?? would call the accountent that does my tax , but its been voicemail/answering machine all day .

It is income and taxed accordingly. You can write of expenses incurred, including mortgage interest, but the net payment to your principle is taxabe.
That's how my accountant did it with me. My sister nets about $10,000 towards her rental property's mortgage, (even though she breaks even on rent payment vs mortgage pmnt) which translates to around $3500 in taxes owed at the end of the year. Wipes out any money she hopes to get back from her normal salary tax return.

[Sushi]

For rental income, you'll need this guide:
http://www.cra-arc.gc.ca/E/pub/tg/t4036/t4036-15e.pdf

and this is the statement you use to declare income/expenses:
http://www.cra-arc.gc.ca/E/pbg/tf/t776/t776-15e.pdf

One interesting thing to note is that if you have someone living in your home that pays you money to offset your expenses but is, say, less than a rental would go for, you can do this tax free. It is considered a non-taxable cost sharing arrangement. I can't remember where this info is located on the CRA website so you'll need to do your own research.

[Domestique]

NOT the place I'd seek tax advice, Just sayin'

[Fisherpeak]

Cash rent. Simple.

[D4l3k]

I always used premier version of turbo tax software (the standard one doesnt have rentral income stuff) from when I had my rental property, made it very easy to enter the numbers

it guides you thru it all and fills out the tax return for you, but

basically you take the total income you got from the renter
ie) 10k
get taxed on it so say 2.5-3k of that you ow as tax on this 'income' (depending on your tax bracket)

now to try lower the tax you ow, you can deduct things like:

- percentage of the INTEREST (not principle!!) you paid on the mortgage
- percentage of professional fees (ie did you purchase this place this year and payed a realeastate lawyer fees)
- percentage of condo fees (if you pay any)
- maintenance (new appliances for the basement suit? any work done? (you cant charge for your own time tho, only if you hire someone)
- percentage of property taxes
- advertising fees to find your renter (did you pay anything to advertise?)

hopefully you get enough deductions to cover the 3k of taxes, if not, you pay the balance of it to the government

[winged1]

Originally Posted by Sushi

For rental income, you'll need this guide:
http://www.cra-arc.gc.ca/E/pub/tg/t4036/t4036-15e.pdf

and this is the statement you use to declare income/expenses:
http://www.cra-arc.gc.ca/E/pbg/tf/t776/t776-15e.pdf

One interesting thing to note is that if you have someone living in your home that pays you money to offset your expenses but is, say, less than a rental would go for, you can do this tax free. It is considered a non-taxable cost sharing arrangement. I can't remember where this info is located on the CRA website so you'll need to do your own research.

http://www.cra-arc.gc.ca/E/pub/tg/t4...tml#P560_53022

If you lose money because you rent a property to a person you know for less money than you would a person you do not know, you cannot claim a rental loss. When your rental expenses are consistently more than your rental income, you may not be allowed to claim a rental loss because your rental operation is not considered to be a source of income. However, you can claim a rental loss if you are renting the property to a relative for the same rate as you would charge other tenants and you reasonably expect to make a profit.

So, any time you have a net income beyond allowable expenses, it is taxable, at your personal tax rate, for your portion of ownership. This may give you an opportunity to slide some off to a lower earning spouse(partner).

[rookiemoosehunter]

Originally Posted by Domestique

NOT the place I'd seek tax advice, Just sayin'

Exactly what I was thinking

[justsomeguy]

Originally Posted by Fisherpeak

Cash rent. Simple.

Worst advise ever! All you need to do is upset a tenant or neighbour and they drop a dime to CRA and you're toast. Had a neighbour do that about a decade ago when living in Fort McMurray. Guy across the street had about 5 guys living in his basement, parties, trucks everywhere (2 per renter, one personal and one work, etc.). He politely asked the homeowner to keep things quiet on weeknights and was told where to go in no uncertain terms by some white Oakley / Tap Out wearing punk who owned the place.

So he documented things for about 3 months, notes on when vehicles were there, how many, etc and sent a letter to CRA to casually inquire if they knew this guy had about $5k in rental income coming in. About 3 months later all the tenants were gone and house went up for sale a few months later.

Never leave yourself open to that.

[deerguy]

Originally Posted by Clgy_Dave2.0

It is income and taxed accordingly. You can write of expenses incurred, including mortgage interest, but the net payment to your principle is taxabe.
That's how my accountant did it with me. My sister nets about $10,000 towards her rental property's mortgage, (even though she breaks even on rent payment vs mortgage pmnt) which translates to around $3500 in taxes owed at the end of the year. Wipes out any money she hopes to get back from her normal salary tax return.

This is great news

[Okotokian]

Originally Posted by Clgy_Dave2.0

It is income and taxed accordingly. You can write of expenses incurred, including mortgage interest, but the net payment to your principle is taxabe.
.

It is my understanding that you can write off the portion of your mortgage interest and utilities that corresponds to the percentage of your total square footage you are renting out. Say they are renting half your house, you can write off half your mortgage interest and utilities, property taxes, etc. Now if you try to write off any of the mortgage payments going to the principle, you will likely be subject to capital gains tax when you go to sell the house. Doubt you will want to go there.

If you own the house with your spouse you can split the income between you. Could be an advantage tax wise if she earns significantly less.

Of course all this is subject to you being legally being able to rent out your basement in the municipality you live in.

[Kim473]

Originally Posted by D4l3k

I always used premier version of turbo tax software (the standard one doesnt have rentral income stuff) from when I had my rental property, made it very easy to enter the numbers

it guides you thru it all and fills out the tax return for you, but

basically you take the total income you got from the renter
ie) 10k
get taxed on it so say 2.5-3k of that you ow as tax on this 'income' (depending on your tax bracket)

now to try lower the tax you ow, you can deduct things like:

- percentage of the INTEREST (not principle!!) you paid on the mortgage
- percentage of professional fees (ie did you purchase this place this year and payed a realeastate lawyer fees)
- percentage of condo fees (if you pay any)
- maintenance (new appliances for the basement suit? any work done? (you cant charge for your own time tho, only if you hire someone)
- percentage of property taxes
- advertising fees to find your renter (did you pay anything to advertise?)

hopefully you get enough deductions to cover the 3k of taxes, if not, you pay the balance of it to the government

Turbo tax is great.

[winged1]

Originally Posted by Okotokian

It is my understanding that you can write off the portion of your mortgage interest and utilities that corresponds to the percentage of your total square footage you are renting out. Say they are renting half your house, you can write off half your mortgage interest and utilities, property taxes, etc. Now if you try to write off any of the mortgage payments going to the principle, you will likely be subject to capital gains tax when you go to sell the house. Doubt you will want to go there.

If you own the house with your spouse you can split the income between you. Could be an advantage tax wise if she earns significantly less.

Of course all this is subject to you being legally being able to rent out your basement in the municipality you live in.

Tax man doesn't care if your suite is legal or not.

If you take the tax deduction in your highest income years, then pay capital gains on reduced income (retirement) years, you can be ahead.

[MoFugger21]

Originally Posted by Sushi

For rental income, you'll need this guide:
http://www.cra-arc.gc.ca/E/pub/tg/t4036/t4036-15e.pdf

and this is the statement you use to declare income/expenses:
http://www.cra-arc.gc.ca/E/pbg/tf/t776/t776-15e.pdf

This is a good start.

Originally Posted by Okotokian

It is my understanding that you can write off the portion of your mortgage interest and utilities that corresponds to the percentage of your total square footage you are renting out. Say they are renting half your house, you can write off half your mortgage interest and utilities, property taxes, etc.

This is correct. Percentage of house being rented is the percentage to use when calculating your eligible expenses.

Originally Posted by Okotokian

Now if you try to write off any of the mortgage payments going to the principle, you will likely be subject to capital gains tax when you go to sell the house. Doubt you will want to go there.

This is not correct. You may be thinking if you claim CCA (capital cost allowance) on the rented portion of the house, then your principle residence (rented portion only) will be subject to capital gains.

Originally Posted by Okotokian

If you own the house with your spouse you can split the income between you. Could be an advantage tax .

This. Can be used as a tax planning tool.

Originally Posted by winged1

Tax man doesn't care if your suite is legal or not.

This.