Depreciation (capital cost allowance) on rental property

[Wendy Cheng]

Looking for some advice... I am purchasing my first rental property, a triplex. I would like to know if there is anyone doing depreciation on the rental property? I know that CCA deduction claimed will become taxable upon sale of the property. What should I consider in order to make the decision for my situation? like my current taxable income level, the future appreciation of the property...

Thanks in advance!

Wendy

[Stevo Sun]

Quote from @Wendy Cheng:

Looking for some advice... I am purchasing my first rental property, a triplex. I would like to know if there is anyone doing depreciation on the rental property? I know that CCA deduction claimed will become taxable upon sale of the property. What should I consider in order to make the decision for my situation? like my current taxable income level, the future appreciation of the property...

Thanks in advance!

Wendy

 You should consider your current and future taxable income. Property appreciation will most likely be capital gain if you keep the property for an extended period. The recapture portion will be 'recapturing' the amount you deducted all the way back to the amount you purchased the property for (basically, think about it as the amount you deducted will be taxed at the sale, assuming you are selling for more than the purchase price). We don't have 1031 exchange in Canada, so the CCA deduction allows you to defer your tax until you sell the property, which would hit you all at once. 

No one can predict what the government will do with tax rates in the future, so it is very hard to plan the optimal solution. Personally, if my taxable income is over 100k (usually whatever that high bracket is) in the year, I deduct CCA to lower my taxable income.