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Subject: lease to own house - can i write off
my improvements?
From Jurock.com 'Ask an Expert' at: http://www2.jurock.com/askexpert/ask.asp?aid=121&cid=63 Name TXX XXXXXXX My question is: Canadian-specific QUESTION: I have a lease on a BC house (1 year) with an option to purchase, and I've used my own funds to cosmetically improve the property . (1) Can I write off these costs some way? (2) Maybe start a home renovation business. (3) Or since this is just a revenue property(I sublet it) is there any way to claim these expenses,that occurred before I purchase the property with the option contract. (4) If I sell the option rights to another party and take my profit without taking possession and what would the tax implication be? Thx for any info --------------------------------------------------------------------------- david ingram replies: I assume that you are not living in the house so: 1. If you have "improved" the property to use your own words, the expenses form part of a capital improvement but are only depreciable (i.e. subject to capital cost allowance). You cannot claim depreciation past zero to create a rental loss. If you sell the house, the costs would be added to the purchase price and would then come off the profit. Under the circumstances you speak of, the tax office would likely tax you as straight income, rather than as a capital gain because what you have done is an adventure in trade rather than a long term investment in rental property. 2. Starting a home renovation business adds to the adventure in trade part of the answer to number 1. People who buy houses, fix them up, and sell them are entitled to deduct expenses but pay tax at double the taxable income rate of an investor who happens to sell a rental house. Go to www.centa.com, click on my income tax guide and then click on capital gains for a good explanation of the difference. 3. As above, any improvements made before you buy or before you rent are added to the adjusted cost base of the property and depreciated rather than expensed. 4. As above. Trading in options is a business, rather than a capital event. therefore any profits are taxed at straight rates. The "advantage" of trading in options is that if you lose money on the deal, you get to deduct the loss against other income. If you lose money in a capital trade, you can only claim the loss against a future capital gain or carry it back three years against a past capital gain you have already paid tax on. We are, of course, available for individual consultations on these and other real estate and US tax matters. David Ingram - www.centa.com the CEN-TA Group Real Estate Income Tax Specialists Mutual Fund Income Tax Specialists US / Canada / Mexico Income Tax and Working Visa Matters 108-100 Park Royal South West Vancouver, BC, CANADA V7T 1A2 (604) 913-9133 Fax (604) 913-9123 Cell (604) 657-8451 10 AM to 10 PM 7 days a week |
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