By Fabio Campanella CPA, CA, CFP, CIM
Real-estate investors are some of our favourite clients. In fact, we deal with hundreds of real estate investors on an annual basis ranging from novice investors to seasoned pros. One of the common questions we get relates to the ability of a real estate investor to deduct auto expenses against rental incomes.
Deducting auto expenses against your real estate rental revenue is not straight forward and depends on whether you own one rental property or multiple rental properties:
One rental property:
If you own one rental property you can deduct reasonable auto expenses if you meet ALL the following conditions:
- The one rental property you own is in the general area where you live;
- you personally do part, or all, of the necessary repairs and maintenance on the property; and
- you use your auto to transport tools and materials to the rental property.
Notice my emphasis above. When you have only one rental property you must ensure that you meet ALL these conditions, or your auto expenses will be denied as a real-estate investor.
Further, you cannot deduct motor vehicle expenses you incur to collect rents. The Canada Revenue Agency considers this to be a personal expenditure (not something that benefits the real-estate investor).
Two or more rental properties:
The rules become more relaxed when you have two or more rental properties. In addition to the repairs and maintenance (performed by yourself) above you are also permitted to deduct a reasonable amount of auto expenses related to:
- collecting rents
- supervising repairs
- management of properties
As a real-estate investor, the rental properties may be in or outside the general area where you live but must be located in at least two different sites, away from your principal residence.
For assistance on understanding what a reasonable amount of auto expenses are and how to calculate them please see our article: Deducting auto expenses for businesses.
At Campanella McDonald LLP we help small business owners, self-employed professionals, and real estate investors maximize their bottom lines by providing value-added tax, accounting and financial advice. Our partners and staff have been advising clients on real estate investment matters since 2002. In addition to tax advice the firm has a dedicated team including investment focused realtors, mortgage brokers and financial planners that help clients design, implement and monitor their real estate investment portfolios from novice to seasoned experience levels. For more information you can email us at firstname.lastname@example.org, or call 647-557-2935 ext: 101.