Author Topic: Does making rent all inclusive make income less optimized?  (Read 1713 times)

Lews Therin

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Does making rent all inclusive make income less optimized?
« on: October 21, 2017, 02:22:45 PM »
Question for those with landlording knowledge.  When you get taxed on rent income, it gets taxed to you. If you make the rent non-inclusive, the amount the renter pays for heat/water/internet doesn't get taxed as rental income on the LL right?
Example: 600month all in rent = 7200 in extra income that will be taxed.
400 month+internet,water,heat (arriving at 600) = 4800 in extra income for LL.
So would it be more tax effective to have the renter pay as much as possible for the LL?
« Last Edit: October 21, 2017, 04:01:02 PM by Canadian Ben »

ketchup

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Re: Does making rent all inclusive make income less optimized?
« Reply #1 on: October 21, 2017, 02:29:07 PM »
I'm not sure what's customary upstairs in Canada, but down here in the states typically tenants sign up for utilities/etc in their own name and pay them directly themselves; the landlord doesn't even see them.

ixtap

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Re: Does making rent all inclusive make income less optimized?
« Reply #2 on: October 21, 2017, 02:33:36 PM »
Again, US, but if rent is all inclusive, you can deduct the utilities as expenses. As such, you are not taxed.

SwordGuy

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Re: Does making rent all inclusive make income less optimized?
« Reply #3 on: October 21, 2017, 04:57:19 PM »
Again, US, but if rent is all inclusive, you can deduct the utilities as expenses. As such, you are not taxed.

Correct.

However, I wouldn't ever include utilities in my rent if it was not a fixed amount that I would be charged.  I include city trash pickup in my rental pricing because it's a fixed amount that I have to pay, as the property owner, whether I want to or not.

If you pay for electricity to run the air conditioning, you'll discover that your tenants turn the air conditioning as high as it can go and open up all the windows in the house at the same time.

If you pay for heating and supplying the water, they'll take 5 hour showers.  Each.  Including their 5 kids and random strangers walking down the street.  Plus they'll wash their cars every weekend and leave the hose running in the yard in between because it's too much trouble to turn it off.

Including variable utility costs based on usage is a safe way to ensure you never pay taxes on profits - because there won't be any.

joonifloofeefloo

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Re: Does making rent all inclusive make income less optimized?
« Reply #4 on: October 21, 2017, 05:10:35 PM »
[Canadian] Yes, that's how I understand the tax aspect on a self-contained unit, Canadian Ben.

I also agree with the others that, for the reasons the folks above have stated, it's best to have tenants have as many of the utilities as possible in their own name. This only works if a place is registered or metered for the given utility (e.g., garbage per registered secondary suite, hydro meter per unit, etc). In some cases, even a licensed service can't be billed to a tenant, though. e.g., If I register a secondary suite with my municipality, resulting in an extra fee for garbage pickup, my municipality won't bill the tenant for that; they just add it to my bill.

Having a place licensed, metered, etc, can add some costs to you, but usually very minimally in relation to the end profit.

Most tax stuff is federal, but be sure to check the landlord-tenant laws for the area the rental is in. Those can dictate things like: what you can require tenant to register for, what happens if tenant doesn't pay a hydro bill they're responsible for, etc.

Lews Therin

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Re: Does making rent all inclusive make income less optimized?
« Reply #5 on: October 21, 2017, 05:29:03 PM »
I'm curious as I'm renting out a room, and having the other person pay the most bills seems to be an interesting way to avoid increasing my income (since my marginal rate is... official term I believe is Sucky.) Theoretically speaking, I can't find anything that wouldn't allow me to have the renter pay for every associated thing (non mortgage); as long as I am not claiming anything as rental expenses. (Because then I would have to rent at ''market rate''. Seems like a loophole, but now that I think of it, I guess it's exactly the same end-effect as claiming it as rental expenses.

kayvent

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Re: Does making rent all inclusive make income less optimized?
« Reply #6 on: October 21, 2017, 06:12:10 PM »
The current rent I pay includes hydro and water. Internet I pay for myself. There are two reasons why it is set up like this. I live in a duplex and the water and some of the electrical arenít discernible; i.e. you canít tell what half is consumer what. The other reason is this duplex has traditionally had both sides rented to university students. This causes a few issues. I will relate one below.

Again, US, but if rent is all inclusive, you can deduct the utilities as expenses. As such, you are not taxed.

Correct.

However, I wouldn't ever include utilities in my rent if it was not a fixed amount that I would be charged.  I include city trash pickup in my rental pricing because it's a fixed amount that I have to pay, as the property owner, whether I want to or not.

If you pay for electricity to run the air conditioning, you'll discover that your tenants turn the air conditioning as high as it can go and open up all the windows in the house at the same time.

If you pay for heating and supplying the water, they'll take 5 hour showers.  Each.  Including their 5 kids and random strangers walking down the street.  Plus they'll wash their cars every weekend and leave the hose running in the yard in between because it's too much trouble to turn it off.

Including variable utility costs based on usage is a safe way to ensure you never pay taxes on profits - because there won't be any.

I must be odd. I am overwhelmingly conservative in what I use. Perhaps because I am an environmentalist. Perhaps because I donít want to ruin what I have.

Where I live, with harsh Canadian winters, Iíve had landlords tell me or friends to leave the heat on in our homes in winter. Pipes bursting are a real fear. Basically, landlords are worried tenants may leave the heat off accidentally or to save money.

Lews Therin

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Re: Does making rent all inclusive make income less optimized?
« Reply #7 on: October 21, 2017, 06:25:08 PM »
leaving it at 14 to avoid pipes bursting is different from people who like to be able to wear shorts and no socks in winter (leaving Heat at 24+)

SwordGuy

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Re: Does making rent all inclusive make income less optimized?
« Reply #8 on: October 21, 2017, 08:21:34 PM »
Where I live, with harsh Canadian winters, Iíve had landlords tell me or friends to leave the heat on in our homes in winter. Pipes bursting are a real fear. Basically, landlords are worried tenants may leave the heat off accidentally or to save money.

Some utility companies will let you, as a landlord, know if the utilities on the property are going to be cut off so you can choose to pay to keep them on.

Others don't.   

joonifloofeefloo

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Re: Does making rent all inclusive make income less optimized?
« Reply #9 on: October 21, 2017, 09:50:37 PM »
...Iíve had landlords tell me or friends to leave the heat on in our homes in winter. Pipes bursting are a real fear. Basically, landlords are worried tenants may leave the heat off accidentally or to save money.

That's a good point, kayvent.

I'm one of those conscientious renters that tries to conserve fuel for the earth and landlords, but I do make sure to maintain the pipes too. Not everyone would necessarily think of that -or care- though.

joonifloofeefloo

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Re: Does making rent all inclusive make income less optimized?
« Reply #10 on: October 21, 2017, 09:55:22 PM »
I'm curious as I'm renting out a room, and having the other person pay the most bills seems to be an interesting way to avoid increasing my income (since my marginal rate is... official term I believe is Sucky.) Theoretically speaking, I can't find anything that wouldn't allow me to have the renter pay for every associated thing (non mortgage); as long as I am not claiming anything as rental expenses. (Because then I would have to rent at ''market rate''. Seems like a loophole, but now that I think of it, I guess it's exactly the same end-effect as claiming it as rental expenses.

Oh, interesting...  In BC, renting out a room (sharing kitchen/bathroom) means the landlord-tenancy stuff doesn't apply.

In terms of taxes, though... I would think this would be a legitimate way to decrease tax. The feds do actually tax weird workarounds like barter and couples living apart, though, so I wouldn't assume it to be tax-free. However, no one on the planet knows how to get a straight answer from the CRA, so good luck ;)

monarda

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Re: Does making rent all inclusive make income less optimized?
« Reply #11 on: October 22, 2017, 09:07:29 AM »
First, make sure your house is well insulated, you have an efficient furnace, and you install low-flow showerheads and aerators.

Then come up with a rent value that includes utilities based on someone keeping the place warmer that you'd like. Then, if you'd like, offer conservation rebates (up to a point) if the tenants use way below the value that you've calculated. That's a good way to keep a good tenant.

tralfamadorian

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Re: Does making rent all inclusive make income less optimized?
« Reply #12 on: October 23, 2017, 08:11:05 PM »
US experience here. I've had a property where I paid the utilities.  It was standard for the area and expected. The lease had a cap; if utilities were above $xxx/mo, then the tenant would be responsible for the difference.  Utilities always came in at a conservative number; the cap clause has never been implemented. 

ElleFiji

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Re: Does making rent all inclusive make income less optimized?
« Reply #13 on: October 23, 2017, 09:12:57 PM »
I once rented a place that was supposed to have utilities excluded. But it was the upper part of the house, with a basement tenant whose utilities were included. We negotiated a higher inclusive rent, but to ease the landlord's concern we agreed to maximum average monthly values.