Jose Montana owns a cottage that he purchased in 2011 for $330,000, with $100,000 of this amount reflecting the value of the land. On January 1, 2020, this cottage is converted to a rental property. At the time of conversion, it is estimated that the cottage has a fair market value of $600,000, with $150,000 of this amount reflecting the value of the land. For 2020, rental income, net of all expenses except CCA equals $30,200. What is the maximum amount of CCA that Jose can deduct on this rental property for 2020?

Question

Quizplus · Accepted Answer

The maximum amount of Capital Cost Allowance (CCA) that Jose can deduct is determined by the fair market value of the building portion of the property at the time of conversion to a rental property, not the original purchase price. The fair market value at conversion is $600,000, with $150,000 attributed to the land, leaving $450,000 for the building. The CCA for residential rental property (Class 1) is calculated at a rate of 4% on a declining balance. However, for the year of acquisition, only half of the CCA rate applies, making it 2% of $450,000, which equals $9,000. But since the net rental income is $30,200, the maximum CCA cannot exceed the net income generated by the property. Therefore, the correct answer is B) $6,800, as it is the only option that does not exceed the net rental income, ensuring the property does not generate a rental loss from the CCA deduction.

Jose Montana Owns a Cottage That He Purchased in 2011