The Tax Benefits of Real Estate Investment

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Managing a real estate investment property can provide substantial tax benefits to the owner if it is well organized and managed. However, the tax rules are complicated, and their application hinges on the type of property, as well as the tax classification of its proprietor. In other words, one investor may be able to screen other income from taxes while another can’t.

Some Useful General Tax Tips:

  • Book a meeting with your accounting professional prior to starting your real estate career so that you know what to watch out for. Should you keep your receipts? But for how long? And which ones to keep?  Most of your questions can be easily answered in a consultation.
  • Stay well organized. This seems like an obvious one, yet there are many real estate agents and brokers who are missing documents, can’t properly add up all of their expenses, and have trouble providing proper evidence of their claims. Create a good system – whether it’s a monthly or quarterly exercise, to separate your different expenses into multiple categories (envelopes, folders, etc).
  • Set up a detached business
  • bank account which can act as the main account for your property income and expenses. This will help you to differentiate between your business and personal expenses, but even more importantly, it does not expose you to the CRA and the possibility that they will look over all of your personal actions if you were ever to be selected for an audit.

Tax Deductions & Write-Offs

With a quick Internet search, or by talking to some experienced realtors, you can probably get a good sense of the kind of expenses that are most commonly deductible. In addition to the many standard expenses (advertising and promotions, meals, monthly brokerage fees, etc).

Real Estate Tuition Courses

There are two different stances someone can take here.

  1. You can claim your tuition expense as a credit on your annual tax return – Schedule 11, to be precise. This is a tax credit, not an expense, and although it could result in tax savings, it does not benefit the taxpayer quite as much as an expense would, had it been encompassed by the business income and expense schedule – Schedule T2125 – on your annual tax return.
  2. You can also include your tuition expense as an actual expense on your annual tax return – Schedule T2125. Once you have become an active realtor, Schedule T2125 on your personal tax return will be for reporting all of your real estate income and expenses to the CRA.

What should you do?  Before you register as a realtor, your tuition courses should definitely be recorded as a tuition credit.  After you have finished registering, you’re in business, and all of your tuition expenses will be included on the Schedule T2125 so that you can then receive the full deduction amount.