When it comes to selling a house, everyone is most concerned about whether they can sell it at a good price. If you want to sell a rental house, you can earn not only the income from selling the house, but also the usual rental income. So how should you report the tax after selling the house? What are the fees and costs?

You might say: "Aren't expenses and costs the same thing? They are all expenses. When filing taxes, just add up all the rental income and house sales income, then subtract all the expenses of the house, and report the rest to personal income tax."
There are many friends who have this idea, but is it right to report it this way? If you really do this, you are totally wrong. First of all, expenses and costs are two different concepts and cannot be confused. Expenses generally refer to ongoing expenses of smaller amounts, such as your mortgage interest, management fees, water and electricity bills, home insurance, and minor repairs, etc. Costs are generally one-time expenses of larger amounts that can increase the value of your home, such as if you redecorate your home in order to sell it at a good price, then the renovation fee is considered the cost of your home.
It is precisely because selling a rental house involves two parts: the rental fee and the cost of the house itself, so when you sell the house, you have to fill out two different tax forms accordingly.
Does it sound a bit confusing? Don’t worry, I will use the story of Ms. Li selling her house as an example to tell you how to report the tax when selling a rental house.
Ms. Li's investment house was a second-hand house bought with a loan of 400,000 yuan six years ago. In order to rent the house at a good price, Ms. Li renovated it and advertised it. Because of the good location and good maintenance, Ms. Li rented out the house in one month and got a good price, 2,000 yuan a month, excluding water, electricity and gas. The management fee was paid by Ms. Li, 550 yuan a month.
During the rental period, the house changed two groups of tenants. Every time the tenants changed, Ms. Li would repaint the walls and change the locks. However, in the fifth year of the rental, Ms. Li needed money urgently, so she planned to sell the house. The lease also expired, and the tenant did not plan to renew the lease. However, the sale of the house was not smooth. The house was on the market for two months before she found a buyer she liked and sold it for 700,000 yuan.
Next, Ms. Li will have to consider the tax filing issue after selling the house. So how do you think Ms. Li should file the tax for the rental house she sold? Based on the distinction between expenses and costs I mentioned earlier, which expenses do you think should be counted as rental expenses and which should be counted as the cost of the house?
Let's first list the total costs of the rental house sold by Miss Li:
This is a second-hand house bought with a loan. There is no HST, but it has loan interest, which is a fixed expense and needs to be paid every month. It is an expense. When the property is transferred, the lawyer needs to prepare legal documents, which will incur a lawyer fee. This is a one-time expense and is considered a cost. After getting the house, Ms. Li renovated it in order to rent it at a good price. There is a renovation fee, which is an expense to increase the value of the house. At the same time, she also advertised, which incurs advertising fees. However, advertising does not increase the value of the house, so this is an expense. The monthly management fee for the house, the annual property tax, and the monthly rent are all considered expenses. The expenses of hiring an accountant to file taxes every year are also fixed expenses for Ms. Li, and are included in the expenses. Because there were two groups of tenants in the five years of renting out the house, Ms. Li repainted the walls and changed the locks every time, which were counted as expenses for maintaining the house, and are also expenses. When she wanted to sell the house, it was not smooth, and the house was vacant for two months before it was sold. Therefore, as there were no tenants, Ms. Li had to pay for the water, electricity and gas bills for these two months, which are also expenses. In the end, the house was sold for 700,000 yuan, and the real estate agent was credited with the contribution, but the agent's fee was borne by the seller, so this part is counted as the cost of the house.
It is much clearer after listing them roughly like this. Then compare the two specific tax forms that need to be filled out. One is the T776 form for filling in the income and expenses of rental housing. The fourth part is very detailed expense items, which can be matched one by one. If the house is co-owned by you and others, you also need to fill in your proportion. Similarly, the income and expenses of selling a house need to be filled in this T1 Schedule 3 form, which is relatively simple. You only need to write the income and costs of selling the house.
In general, the tax return for selling a rental property is divided into two parts, one is to report the rental income and expenses, and the other is to report the sales income and expenses. The key to filling out the form correctly is to figure out what is considered as expenses and what is considered as costs. Expenses generally refer to ongoing expenses such as mortgage interest, management fees, water and electricity bills, home insurance, daily minor repairs, etc., which are relatively small expenses; while costs are generally one-time, large expenses that can increase the value of the house, such as luxury decoration.
Having said so much, I hope to help you sort out the tax returns for selling rental properties. Of course, today we only talked about how tax residents should operate, and non-tax residents will have different operations for renting property taxes. We will explain it to you in detail in another video, so be sure to follow us, and remember to like, comment, forward, coin, and click the little bell, so you won’t miss our latest content. Thank you for your support, and see you next time.