Rental Property Renovation and Sale

[iawweh]

Hello, 

I am hoping someone can help me with me inquiry.

I have owned a property for a number of years, and my tenant moved out May 2021. I have since then made some renovations to the property that were completed in November of 2021. The property was then put on the market in December and sold in January of 2022. 

I understand that the renovation would be a Capital Expense and not a current expense, but when should I be claiming that? I am currently filing my 2021 taxes but my property sold in 2022? Would I wait till i file my 2022 taxes to file the sale and claim the cost of the renovations? 

The renovation was a big amount so i do not want to lose out on anything i can claim or mess up my taxes by incorrectly claiming it as current expenses under a rental property. 

Sorry I hope that makes sense, any information would be appreciated. 

[iawweh]

Sorry to add to the above.. I am using TurboTax premium, and tried to use all the help features and searches to figure out how to claim/record the renovation capital expenses if the property was not sold in the same year. 

I read somewhere: CRA has set out criteria to help taxpayers to determine whether the expenses incurred are considered current expenses, which are deductible against rental income, or capital expenses, which are added to the capital cost of the building and can be deducted against the future sale price of the property.

So do I wait till the year of the sale to claim the renovation capital expenses?

Thanks 

[ram06]

You would like to include your sale in your 2022 return and offset the proceeds by these capital expenses. Any capital expenditure is added to the cost of the property. Prepare a list of upgrades and capital expenditures during 2021 in order to update the Adjusted Cost Base (ACB). Usually, ACB is the cost of a property plus any expenses to acquire it, such as commissions and legal fees. The cost of capital property is its actual or deemed cost plus expenditures, such as the cost of additions and improvements to the property. This will increase the adjusted cost base and therefore reduce your capital gain.

Note: You cannot add current expenses, such as maintenance and repair costs, to the cost base of a property.

If you want to claim the expenses as current in your 2021 return but still unsure whether they are capital or current, please read this article to determine the type of expenditures.
Current or capital expenses as per the Canada Revenue Agency (CRA)

Related Information:

Rental property expenses as per Turbo Tax

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