Winter certainly came in with a bang this year. Even though the snow slowed the city down for a couple days the real estate market is still humming along on all cylinders. The province has seen an increase in the number of sales, as well an increase in the average sale price of houses. This all means that it is still a great time to be selling.

In our EL CP TAR investing model we have covered Equity, which is the difference in what you owe against a property compared to what that property is worth. Leverage, controlling a property with a small down payment and borrowing the balance from somewhere, or someone, else. Cashflow, the money that is left over from the rent you receive after all your bills are paid. Most recently we covered Principal Pay Down, which is the effect of paying down the mortgage a little bit every month over time.

This month let’s talk about taxes, specifically, what impact real estate investing has on your taxes.

Please keep in mind that I am not an accountant. Before making any decisions please consult your trusted tax advisor first.

One fantastic advantage of investment property is that interest payments on borrowed funds, and all the expenses associated with the property are tax deductible. This includes property taxes, all utilities, property management, maintenance, any marketing costs etc.

Another great application of this principle is through something called depreciation. The government allows you to depreciate the value of a building because they know that things wear out. The roof may need new shingles, you may need to replace the windows. You are allowed to depreciate the value of your rental property by 4% every year based on the original value of the property, which is the purchase price minus the value of the land.

Here is an example: purchase price $300,000 value of the land $50,000 value of the building $250,000

You could depreciate the value of that building by 4% every year, up to $10,000 in the first year. This could lead to a decrease in taxes you pay and put around $3,300 back in your pocket, depending on your tax bracket. Here is the catch, when you sell you will need to pay back all those tax savings. There are a couple things to remember here. A dollar today is worth more than a dollar 10 years from now. If you can use your tax savings to reinvest in more property this may be a good strategy you can use. Also, ALWAYS check with your tax professional to see what makes the most sense for your particular situation.

Next month we will discuss appreciation and how, over time, it can have a very powerful impact on your bottom line.

(Brad Chisholm is a Realtor and real estate investor based in Saskatoon Sk. You can find him at bradleychisholm.exprealty. com or brad.chisholm@exprealty.com.)

-Brad Chisholm