Showing a loss, gain or breaking even on tax return

[Jordan Regier]

Hi Everyone, I am new to investing in rental properties as I mostly build and sell and I have a question about showing a loss or breaking even on my income tax return. Let me give you some background.  I'm building a short term vacation rental property in Sauble Beach, Ontario. We plan to use the cottage a few weeks a year and rent it out the rest of the year. I've done all the calculations and the property is going to cover the expenses and generate a decent amount of cashflow. However it would be relatively easy for me to show a loss or breaking even on the property.  I have a high income from my day job and I'm wondering if Its better to show a loss from my rental property? Any help would be great. thanks.

[Henry Clark]

Couple of approaches

1.  Show the loss.  Reduced taxes and increased cash flow.  
2.    Your banker won’t care.  They will look at Net Operating Income and cashflow. 
3.  Talk with your tax accountant and make sure your rental loss will offset your normal income.  Not sure in Canada. 
4.  From a future standpoint will you be in a higher or lower tax bracket.  Then ask your question. 

[Jerry W.]

@Jordan Regier, it depends.  I know that you can elect to expense certain items rather than do depreciation, there is accelerated depreciation, which they will start phasing out next year, but gross income and expenses will eventually show a profit if you keep operating it well.  The answer is it depends.  Will you need the loss more next year?  Will your personal income go up more or down?  Are you planning on using a lot of loans in the near future?  I have been pretty aggressive in expensing everything I legally can, but have shied away from doing accelerated depreciation, as I intend to hold for a long time while it helps now, it will hurt later.  Are your properties set up to pass to your kids and get a free stepped up basis or are they in Sub S corporations or LLCs?  If they are not set up right your heirs will have massive taxes.  All of this based upon American tax laws, if you are paying under the Canadian system I have no idea how it will affect your taxes.  What your tax forms show will affect how willing your banker is to lend.  Not all bankers are willing to factor in how much you claimed in depreciation in deciding whether or not to loan to you.  They want to see profits.