My question is: Canadian-specific
QUESTION: Our house is currently valued at 600,000 and we would like to
build a garage for 40,000 for my husbands business. What are the tax
implications when we sell if he writes it off as a business expense now?
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david ingram replies:
I am doing exactly the same thing myself at the moment. They were clearing
the back yard yesterday and I am waiting for the excavator and trucks to
haul away about thirty truck loads of dirt and rubble from the pile of
rubble left there thirty years ago.
If you borrow the $40,000 to build the garage, all the interest will be
deductible. If you heat the garage, the heat will be deductible and of
course, the light will also be a deduction.
It gets a little trickier with the property taxes. Since you will be
getting a building permit, the existence of the garage will be known and the
assessment should now include a new and higher figure for buildings. My
house is now 40 years old and has little value on my assessment notice. If
I build a $40,000 garage, the garage will be worth more on the assessment
than the 3,000 square foot, 4 bathroom house. You should be able to
identify the taxes you will be paying on the new structure and deduct
property taxes based on the square footage of the garage and related areas
for the land and the taxes on the building itself. Of course, it is easier
to just claim a percentage of the taxes based upon the square footage of the
garage to the total building structures. In other words if the garage was
1,000 square feet and the house 3,000, the garage would be one quarter of
the taxes.
But then again, there is another factor involved. If you are in BC and get
a home owner's grant, in my opinion, you would deduct one quarter of the
"gross" taxes because the homeowner's grant only refers to the house you
live in.
You do NOT want to deduct depreciation on the building structure itself
because the policy of the tax office will be to tax that portion of the
property for capital gains tax when it is sold.
Good luck, and good karma!
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