Losses on new home - Metro US

Losses on new home

Q. Last June, my wife and I closed on a new home purchased in October 2006 for investment purposes. Although our tenant pays all utilities, we have a cash shortfall every month for which we must pay ourselves. Should this purchase transaction have been reported in 2006?

How much and where on our tax return do we account for the closing cost, new air conditioner, paint, etc.? Did we make a right decision keeping the house?
— Dan and Ashley

A. Most real estate purchased in 2006 would have appreciated substantially.

Even with the current economic climate and recent reports that indicate an 11 per cent price decline in Canadian real estate, your investment maybe worth greater than the original 2006 purchase price.

Real estate is a long-term investment and not a commodity to be sold for a quick buck. Current real estate listings are filled with speculators waiting (and waiting … and waiting …) to make a fast dollar.

In 2006, you had no filing requirements. However, maintain records and copies of the original purchase and sale agreement and all closing costs. These documents will be required to determine your capital gain/loss in the year of sale.

Real estate rents are reported on form T776 Statement of Real Estate Rental. The form is quite detailed; it includes the rents that must be reported and expenses that can be deducted. Closing cost, a new air conditioner and the like are capitalized and reported on a separate schedule.

You should consult a tax professional who specializes with real estate investments.

– Reach Henry Choo Chong, CGA, at choochonghcga@yahoo.ca or 416-489-7800, ext. 227.

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