question archive At the end of the current year, Fred owned two residential rental properties
At the end of the current year, Fred owned two residential rental properties
Subject:AccountingPrice:2.86 Bought12
At the end of the current year, Fred owned two residential rental properties. Rental property #1 cost $125,000 (land $50,000; building $75,000) and at the close of last year had a UCC of $64,000. Rental property #2 was acquired in the current year for $210,000 (land $80,000, building $130,000). Revenue and expenses for the rental properties during the year were as follows:
Property #1 Property #2 Total
Revenue $13,200 $4,500 $17,700
Expenses:
Mortgage interest (0) (3,000) (3,000)
Repairs & maintenance (5,000) (0) (5,000)
Property tax (3,100) (1,000) (4,100)
Insurance (500) (200) (700)
(8,600) (4,200) (12,800)
Income $ 4,600 $ 300 $ 4,900
Determine the maximum CCA deduction for the rental properties for the current year. Income tax reference: Reg. 1100(11), 1101(1ac).
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Rules regarding CCA of rental properties:
According to the taxation act, the rental building that costs $50,000 or more will be considered as separate class asset for CCA purposes and can not be pooled.
The CCA is to be deducted to that extent only which does not create or increase the net loss for the combined rental properties.
The maximum CCA to be allowed is $4,900 (the net rental income before CCA for the two rental properties). This CCA of $4,900 can be claimed partly from both the rental properties in any proportion up to the maximum limit available for each class of property.
Step-by-step explanation
CCA calculation:
The CCA rate for rental properties is 4%.
The total maximum CCA available for both the properties (combined) is $5,160, but this will exceed the net income from the combined properties, that is $4,900. Therefore, the maximum CCA allowed for both the properties is the total net income from the properties, that is, $4,900.
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