Filing Taxes as a Landlord: What Expenses You Can Claim

Tax season is here. For rental property owners, that means it’s time to gather and review the necessary documents so that you can account for all the income you generated and expenses you incurred in 2024. In this guide, we will help you understand which rental property expenses you can claim, how to differentiate between capital and current expenses, and why choosing the right type of property insurance is essential. Keep reading to learn more!

Please Note: This blog provides a general overview of tax deductions and property insurance. It is not all-encompassing and should not be taken as specific advice. Be sure to discuss your unique circumstances with a licenced insurance broker and/or tax professional to receive guidance tailored to your situation.

Understanding Rental Property Expenses and Tax Deductions

A rental property can take many forms - you may have a basement suite rented out to a young professional or student, own a separate house with a family living in it as tenants, or manage a building that has multiple rental units. Whether your rental arrangement is short-term or long-term, the reality is that generating rental income comes with associated costs.

Similar to business owners, landlords incur expenses that can be deducted from their income to lower the amount of tax owed when they file their taxes. These expenses typically fall into two categories: capital expenses and current expenses.

• Capital Expenses: These are long-term improvements that enhance the property’s value or extend its life. Examples include adding a new roof, renovating a kitchen, or installing new flooring. Capital expenses are not fully deductible in the year they are incurred; instead, they must be depreciated over time.
• Current Expenses: These are ongoing costs necessary for maintaining the property, such as repairs, property management fees, and utility bills. Unlike capital expenses, current expenses can usually be fully deducted in the same tax year.

Understanding these distinctions is crucial when determining how to claim deductions and ensuring compliance with regulations when you file your taxes.

Rental Property Expenses You Can Claim

As a landlord, you can deduct various expenses to reduce your taxable income. Here are some common deductions you should be aware of:

• Mortgage Interest: The interest portion of your mortgage payments on a rental property is deductible. However, the principal portion of your mortgage payment (the amount that goes toward paying down the loan itself) is not deductible. 
• Property Taxes: Any property taxes paid during the year can be claimed as an expense.
• Repairs and Maintenance: Routine repairs like fixing leaks, repainting walls, or replacing a broken appliance qualify as current expenses.
• Utilities: If you cover heat, water, or electricity for your tenants, these costs can be deducted but if your tenants pay for their own utilities, you cannot claim these expenses. If you rent out a portion of your home (e.g., a basement suite), you may only deduct the portion of utilities that applies to the rental space.
• Property Management Fees: If you hire a property manager to handle tenant relations and maintenance, their fees are deductible. This can be a great option for landlords who do not want to manage their rental property full-time.
• Advertising Costs: Any money spent on marketing and advertising to attract tenants is deductible. This includes:
  • Online rental listings
  • Newspaper ads
  • Printed flyers or brochures
  • Professional photography for rental listings
• Insurance Costs: Landlord insurance or home insurance premiums can be claimed as a deduction. 

Keeping thorough records of all rental property expenses will help ensure you claim all eligible deductions and maximize your tax savings.

Landlord Insurance vs. Home Insurance: Which Do You Need?

One of the key financial considerations when owning a rental property is securing the right type of property insurance. The type of coverage you need depends on your living situation and how the property is being rented out.

• Home Insurance: If you plan on living in the property and renting out part of it, such as a basement suite or an extra room, there is a good chance your standard policy will not provide coverage. You might require additional coverage on your policy, or a new one altogether. 
• Landlord Insurance: If you own a separate rental property where tenants live full-time, landlord insurance is essential. This coverage typically includes property damage, liability protection, and potential loss of rental income due to unforeseen circumstances.

If you’re unsure which type of coverage suits your rental situation, a BIG broker can assess your needs and help you choose the right policy.

Protect Your Rental Property With BIG

Owning a rental property can be a rewarding investment, offering steady income and long-term financial benefits. However, it also comes with additional responsibilities when compared to traditional homeownership. From managing rental property expenses to securing the right coverage, landlords must be well-prepared if they want to optimize earnings and handle any unexpected financial challenges that may arise. 

If you’re unsure about your insurance needs as a landlord, don’t hesitate to consult with a BIG broker. They will assess your situation and help you compare quotes for property insurance to help determine which type of policy is best for you.