I bought a second condo. How will this affect my taxes?

Acquiring a rental property is a great investment that has the potential to benefit you for years to come. It is important to remember when you own such a property, the process of filing income tax becomes very different. This article from the Globe and Mail answers some common questions regarding income taxes for investment properties.

Even if you use your current residence as an office to manage the finances for your rental property, the interest gained on the mortgage used to finance your residence is not deductible. The important thing to remember is that when Revenue Canada reviews your profile, they focus on the direct purpose of any borrowed funds. In most cases, when funds are borrowed for an income-producing purpose, the interest is deductible.

There are several other miscellanious expenses that can be deducted regarding a rental property. These include heating and electrical costs, property taxes, any condo fees, insurance and advertising costs. If your mortgage is for the rental property, the interest in this case is deductible.

If your rental property was previously your residence, the "change in use" tax rule will apply to you. Basically, this means that the day you converted your property from a residence to an income property, you sold it at market value and re-purchased it at the same value. Therefore, if the property's value increased since the original purchase date, the difference may be viewed as capital gain. Be sure to consult a tax professional regarding the possibility of sheltering this gain.

Read the full article from the Globe and Mail here.