So, you have purchased a rental property as a “good investment”, but are you putting time into managing that investment? Repairs and maintenance are just one aspect of managing a capital rental property. When it comes to taxes, the financial management of that property is just as important as daily upkeep.
Track Your Property’s Life Cycle
The life cycle of a property can be tracked just like any other capital investment. This means the original cost, changes to the actual asset, and information about the final disposition of the property are all important data that can help you determine what you do with the property over time and the best time to sell it or otherwise dispose of it. Some questions that tracking data can help you answer include:
-Should we claim capital cost allowance (depreciation) on the property?
-Should we live in the building for any period of time before we sell it?
-We might have to sell the property for a loss. Is there an advantageous time to sell it?
Investment Timeline and Outcome
The length of time you plan to retain the investment for, and how you plan to end ownership (ie: sell it, transfer it to a trust, or leave it in a will) can greatly impact day to day decision making, but also inform your related tax plan.
How to Track Your Investment
Work with your accountant to develop a custom rental property investment tracking template. It should include information about the ownership structure, purchase date and costs, yearly activities (for example if you lived in the rental for any period of time), capital improvements you did not claim as expenses on prior income tax returns, costs to sell, and the proceeds received when the property is eventually disposed of. It is also a good idea to understand what expenses you can claim before tax time.
Cedar Creek CPA 