Real estate investors often ask if they can claim tax deductions for sweat equity. In other words, does that work you put in organizing clean up before a new tenant, or at your short-term-rental to get it ready for the season, equate to tax deductions down the road?
Just the other day, a client asked me: Can we claim for expenses that we did not pay for but consumed our time (e.g. painting a rental premises by ourselves, doing repairs on a property ourselves or clean up work done on our own)?
And the answer…while in theory you could, it’s pointless in most cases.
If you say you did $100 of labour, and took in $100 of income, they offset each other, so you actually don’t accomplish anything. Unfortunately while you could get the $100 deduction, Canada Revenue Agency (CRA) would say that you received that income in your hands. So in essence, CRA is not allowing you sweat equity for that deduction.
And potentially claiming tax deductions on sweat equity could put you in a worse position because of GST/HST, CPP and employment taxes, for example.
What can you claim?
So it’s best to keep in mind that while you may not be able to claim tax deductions for sweat equity, you can still deduct expenses that you paid for, like supplies and equipment.
Resources for tax deductions for sweat equity
For additional resources related to tax deductions real estate investors may be able to claim, see:
More questions?
Still have questions? I want to help you Do Wonderful Things™ with your real estate investments, so please contact me today.
Remember – circumstances are unique! This information is summary in nature. Seek out advice from your tax advisor about your specific situation.
