Yes its tax time again! So many people dread the paperwork but the savy real estate investor can turn the silver lining into a gold medal! In a series of tips for investors our first tip involves depreciation:
Capital Cost Allowance (Depreciation):
Depreciation, or for income tax purposes Capital Cost Allowance (CCA) can be an effective way to shelter your real-estate income from current taxes by transferring your obligation to future tax years. CCA works by amortizing a portion of the cost of your rental property against your rental income, generally 4% of your building’s cost on a declining basis year over year.
CCA is an election, meaning that it is the taxpayer’s choice whether or not to use it. The drawback to CCA is that it is recaptured in the year you sell your property, meaning that the historical CCA you’ve taken will be added back on income account to your tax return if you sell the property for anything more than your current un-depreciated capital cost (i.e. the cost of your property less the CCA claimed on prior tax returns).