Hi there! If you're a landlord, there are some rental expenses that you can't deduct on your tax return, like mortgage principal (also known as equity).
When you take out a mortgage to buy a property, you're borrowing money from the bank. When you make your mortgage payments, part of the payment goes towards paying back the money you borrowed, and the other part goes towards interest. The interest you pay can be claimed as a tax deduction, but the part that goes towards paying back the money you borrowed cannot be claimed as a deduction because it's not considered an expense.
Think of it like borrowing money from a friend or family member. When you borrow the money, it's not considered an expense because you haven't paid for anything yet. Only when you spend the money on something can it be considered an expense. When you repay the loan, it's just you giving back the money you borrowed, so it's not an expense.
There are other common types of items you cannot claim as a rental expense.
Let's break them down for you:
For example, if you're renting 2 rooms in a 5-room house, you can deduct 100% of the expenses that relate only to the rented rooms, like repairs and maintenance, and 40% of the expenses that relate to the whole building, like taxes and insurance.
Remember, if you're claiming expenses for renting part of your property, you need to have a reasonable expectation of making a profit from it.
We hope this helps! For more information, check out the Canadian government's website or contact a CPA.
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