The Ultimate Secret For Real Estate Tax Writeoffs

A few years ago when I started doing live events teaching people how to invest, one of the things I wanted to do for my students was provide them with a snack during the class. Costco offered some great snack options, so I signed up for a membership and was able to legitimately write off the membership as a business cost on my corporate taxes.

Fast forward to today, and I no longer have any live classes planned, but I still want to write off the membership. Well, recently I was at Costco and I saw a few services I’d never noticed before…

  • Real estate listing service
  • Home inspections
  • Legal services
  • Mortgage services

I had no idea these types of services were offered (I guess Costco doesn’t market them very well!). Anyways, they were more than enough reason to continue renewing my membership and being able to deduct the cost.


After I thinking about it, I realized Costco could be used for more than just real estate services. For example, you can buy…

  • Tools (for doing renovations)
  • Furniture (for basic renovations and home staging)
  • Gift baskets (at Christmas time and throughout the year for your tenants)
  • Computer equipment (for a home office)

And that’s just a few ideas I came up with.


CRA Is Subsidizing Your Costs

By writing off your membership, CRA is actually helping to subsidize the cost. So, for example, if you are an investor owning properties personally, you can write off any costs against the income of the property.

And if you have a loss, you can write off that loss against your personal income (e.g. from a job).  In either case, you’ll either pay less in overall taxes or get a tax refund if you have a loss. Note: I am not an accountant, so before trying to deduct your membership costs, please consult one.

A basic membership costs $50, with the executive one (with more services) costing $100. And while that may not seem like a lot, every little bit counts.


The Ultimate Secret

When I first became interested in investing and business, I had to learn things the hard way because I didn’t have anyone to teach me.

I was 21 or so and I started my first business… I joined a network marketing company selling health products. Somehow I thought just because an expense was a ‘tax write off’, it was somehow a good thing (everyone was telling me ‘you can write it off!’).  So I incurred all kinds of costs for my business, some of which I probably could have done without.

After awhile of losing money, I finally figured out that an expense is cash out of your pocket, no matter what it’s called and no matter what the tax consequences! If you don’t have enough money coming in to cover that expense, you should reconsider making that purchase.

That was a tough lesson to learn, but there was an even better one that almost no one was talking about.  It was the secret to actually making tax write offs work for you.  It was such a simple process, I couldn’t believe I had seen it before and that more people weren’t talking about it.

The secret is…

  • Find something you personally want or need
  • Figure out how to legitimately use it in your business, and then
  • Claim it as a deduction

That’s it!  A simple, but very powerful way to make the purchases your real estate business needs to grow, and to personally benefit from the purchases at the same time.


Know Your Deductions

Now be careful with this… don’t go buying all sorts of personal things and then trying to fit them in a business deductions later, without knowing what you can deduct.

In fact, that’s part of the trick… knowing what deductions you have available to you, depending on how you’re holding your real estate portfolio. CRA actually distinguishes between quite a few different methods, and they allow different deductions for each…

  • Held personally, 2 or more properties
  • Held personally, 1 property only (limited travel costs)
  • Held in a corporation, 5 or less employees (full corporate tax rates apply)
  • Held in a corporation, 6 or more employees (small business tax rates apply)
  • and more

As you can see, the rules can get complicated (that’s why I recommend an accountant). If you’re like most people, you’ll be holding properties personally and for that situation, unfortunately, your options are limited compared to your properties being held in a corporation and treated as a ‘full business’.

For more details on personally held properties, I recommend you check out the CRA Rental Income tax guide to see what deductions you have available for you, and then maximize your deductions by trying to find a ‘personal’ element to them.

T4036 Rental Income Tax Guide (Includes Form T776)


If you use this ‘secret’ consistently (and legitimately), you’ll find that your tax bills will get lower, keeping more cash in your pocket, all while your net worth grows over time.

Just don’t forget… an expense is cash out of your pocket, even if you can deduct it, so be sure you really need the expense before making it!


What kinds of deductions have you made for your investment properties or investing business?

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Paul Blacquiere

Paul is an entrepreneur, investor, speaker, and educator.
He's experienced in multi-family properties, renovation, flips,
joint ventures, and is Canada's top RRSP mortgage expert.
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  • Chelley C says:

    We self-manage our properties, so buying a power washer to clean the rentals, and in turn, our home will be a great deduction. And since we have two or more properties, we can deduct the mileage to pick up the rent cheques. CRA won’t allow that if you only have one rental property.

    • Paul Blacquiere says:

      Now that’s a great idea! I’ve never though of that, but it makes sense. I’ve seen them used for vinyl/aluminum siding and overhangs, as well as driveways… can they be used for windows and other things too? Or is the pressure too strong?

      Re: CRA, I never understood why they had that rule… as if somehow by owning only 1 property, you don’t actually use gas to pickup rent, supervise repairs, etc.

      I guess it was a cash grab for all the small time landlords who owned only 1 property, although I can’t see it amounting to that much in tax revenue…

      • Chelley C says:

        Windows, fences, all those kids plastic toys – you name it! You can turn the pressure down, depending on the job you need done. Messy job, though. Maybe I can write it into the rental agreement that the tenant must power wash twice a year…. 🙂 It is nice to dream, isn’t it?

        • Paul Blacquiere says:

          LOL I’ve heard some new investors say that they’ll just write in into the lease that the tenant is responsible for X, Y and Z, and I guess they think it will magically get done. Never seems to work out that way.

          And if you ever try to evict someone for not pressure washing the driveway or shoveling the snow, good luck convincing a tribunal judge if everything else is fine and they pay their rent on time. Besides, it costs money to evict… probably more than it would cost just to pay someone to do the work.

          My advice — if you can include some sort of incentive for the tenants, like a small discount off their rent IF they do the work, then that might work.

  • Awesome post Paul, although we’ve got an accounting firm that’s extremely experienced with taxation rules for real estate investment firms, I still enjoy learning about this. Knowledge is critical to planning and making the right decisions, not just arriving at taxation time and hoping for the best result in terms of taxation.

    • Paul Blacquiere says:

      Thanks Brent. I find that even though I hire and depend on professionals such as lawyers and accountants, I always expand my knowledge and learn from them while i use their services. It helps me with tax and legal planning, so I understand exactly what’s going on when they recommend something to me.

  • bryce m says:

    great topic Paul. Isn’t this another version of cash flow management? yes there are many things that could be legit deductions, but if they put your household into negative cash flow, they are still a poor choice.

    • Paul Blacquiere says:

      Hi Bryce,

      I wouldn’t really call it cash flow management. My point is that many people get caught up in writing off expenses, as though having a deductible expense is better than having no expense at all. In the end, it comes out of your pocket.

      If you have no expenses, that’s great. But… If you have personal expenses (which we ALL do), and you find a way to make it deductible by using it within your investing business, that can be a smart thing to do.

      Look at it this way…

      Would you rather have a property with positive cash flow and an overall profit for the year, and have to pay taxes on that?

      Or would you rather have a property that shows slightly negative cash flow, but it’s only because you figured out a way to make personal expenses deductible, which creates an overall loss for the year, and you get a tax refund from it? (assuming of course it’s held personally)

      I hope this clarifies things

      Paul

  • Diego says:

    hi paul, great topic…i bought a condo in florida as a rental investment, for 2 strategies, to earn money & to use for wehn i visit florida to deduct my expenses, at least some of them.

    • Paul Blacquiere says:

      Very smart! Of course you have to visit your investment property once in awhile to check up on things, talk with your team, etc., and while you’re there enjoy some sun. That’s definitely the way to do it 🙂

  • Denis says:

    Hi Paul,

    It’s always interesting to find ways to get back at the tax man 🙂 But, I think in some (common enough) circumstances it could harm more than it could help; specially if applied closer to the upper limit. Couple of examples would be:

    1- If you get gung-ho about writing things off, the day CRA comes knocking for an audit, one could spend a lot more money sorting things out than was “saved”. Make sure all your i’s are dotted and t’s crossed with much (credible) paper trails. Paying it back is one shortfall, but, being in their bad books and repeat audits is a real drag I’ve heard.

    2- As you build or continue to build a portfolio of income generating properties, perhaps a good positive cash flow would be nice when looking to borrow more money to buy more. The day you have a flat or negative net cash flow, good luck getting access to funds. positive cash flow = profitable = well run business (in most if not all cases)

    If one spends too much time thinking of creative ways of writing things off, perhaps more of that time would be better spent analyzing and acquiring properties 🙂

    Everything in moderation is a good rule of thumb.

    I guess it all depends to what level one wants to play the game.

    Cheers!

    • Paul Blacquiere says:

      Hi Denis,

      In my experience, analyzing and buying properties is relatively easy — anybody with cash and credit can do it.

      However, buying and holding for long-term and making a profit is a different story.

      Part of that process is understanding the tax deductions available to you as an investor. If you don’t understand them and you don’t make use of them, you will pay more tax, plain and simple. And that will impact your after-tax cash flow.

      To learn more about the tax deductions available to you, I highly recommend you read and re-read the Rental Income Tax Guide listed in the article above.

      As for your 2nd point re: showing a positive cash flow for properties in your portfolio to help with financing, banks typically have a set of income and expense items they look at when underwriting a mortgage.

      However, I learned years ago that these expense items are a sub-set of what the actual expenses are for a property (I actually got my hands on a bank analysis form used for underwriting!).

      For example, I have rarely seen lenders include snow blowing or lawn care on the list of expenses they want to see. However, those are real costs that eat into your cash flow and your profit.

      One other thing… the types of expenses I’m talking about in this article are not usually requested by a bank, as they are often NOT deductible expenses that real estate investors can claim.

      However, there is a way to structure your real estate business to legitimately write off much more than is normally allowed by investors.

      I talk about this in more detail in my Real Estate Profits System course, and yes, it’s all approved by accountants and by CRA. 🙂

      Anyways, hope this clarifies things a bit. If you want to learn more about my course, you can click the link below.

      Click Here to learn more about the Real Estate Profits System

      Thanks,
      Paul

  • Max Chavda says:

    Costco wow I did not think of this. I used to write it off in my corporation. We’ll corporation is sold. All RE is in my personal name,now can write off my costco membership.
    Thanks Paul

    • Paul Blacquiere says:

      Glad I could help! If you use it in your personally held real estate business, you should still be able to write it off. Check with your accountant to make sure.

  • Lynda says:

    Do you know if i am able to claim a very large condo cash call as a rental expense?

    • Paul Blacquiere says:

      Hi Lynda,

      I recommend you talk to an accountant for your situation, as it could be considered capital in nature, which means it must be deducted over a period of time.

      Paul

    • Ryan says:

      Hi Paul,

      Good article. What are you thoughts about me paying my wife to manage our properties. We currently Air B&B a basement suite in our home and have a rental condo and are thinking about adding another. I’d like to pay her a salary to manage this that would equate to more that just hiring a property management company.

      Thoughts?

      Ryan

      • Paul Blacquiere says:

        Hi Ryan,

        I started typing a reply to your question, but then quickly deleted it. 🙂 Instead, I’ll recommend you talk to an accountant about your situation

        Sorry I couldn’t be of more help

        Paul


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