Everyone’s favourite subject: Taxes! If you don’t handle financial records, bookkeeping, or accounting often, then when it comes time for tax season you most likely have a question - or 12 - when it comes to which expenses are deductible and which are not. In Canada, there are few options for real estate tax deductions, but the rules are a little grey. Read below to answer your questions as to whether or not your real estate taxes are deductible, and what other deductions you may be eligible for as a homeowner!
Personal Residence Real Estate Deductions
Bad news: In Canada, homeowners of a property used as a primary, personal residence are not eligible to claim deductions on the interest accrued on their home and mortgage loans. But the bright side - there ARE tax breaks and deductions you may be eligible for depending on outlying circumstances.
When you purchase or build a home as a first-time homeowner, the Home Buyer’s Plan gives you the option of borrowing up to $25,000 from your Registered Retirement Savings Plan (RRSP) tax-free.
And if you and your partner are building or buying together, you can both withdraw up to that $25K amount from your own RRSPs. Part of the requirements of accessing these funds is that you will pay back the loan over the next 15 years. So if you and your spouse each borrow $15,000, every year you will make a $2000 repayment. However, this is a great option as there is no interest or tax charged on this loan.
First time home buyers are also eligible for the First Time Home Buyer Incentive. If home buyers qualify, this incentive can provide up to $750 in tax credit relief come filing time. For rules on qualification for the First Time Home Buyer Incentive, check out our blog with all the ins and outs here!
Selling Your Home
If you plan to move, then this is a potential tax break for you. If you receive capital gain on the sale of your primary residence, that profit is tax-free! Let’s say you purchased your home 5 years ago for $100,000. With inflation and new developments in your neighbourhood, your home is now worth $210,000. If you are able to sell at that price, then you would be making a non-taxable profit of $110,000! Again, this only pertains to a primary personal residence. There are other tax deductions available if you own a rental property, which we will cover below.
Home Office Tax Deductions
You can deduct home office expenses if you meet one or both of the following criteria:
- You work primarily (more than 50% of the time) from your home office
- Your home office is used ONLY to earn business-related income on a regular basis and you often meet clients, customers, or patients in this space (ie. it can’t be a desk set up in your kitchen)
While the rules and regulations regarding home office deductions can be a bit dicey, and we encourage you to meet with an accountant to file correctly, here are some things that are potentially deductible (or partially deductible) with a home office:
- Cell phone
- Office supplies (paper, pens, staplers, stamps, etc.)
- Repairs and maintenance pertaining to the office space (cleaning supplies or services, paint, etc.)
Investment Property Real Estate Deductions
When you own a property for the purpose of generating income, you are eligible to claim certain expenses as deductions on your tax returns. Below are a few potential categories to keep track of your expenses so you are prepared come tax time!
- Rental Ads (Airbnb, VRBO, newspaper ads, etc.)
- Rental management company fees
- Maintenance or repair expenses (lawn care, paint, replacing broken flooring, HVAC maintenance, etc.)
- Vehicle expenses related to collecting rent, supervising repairs/management (ONLY if you own 2+ properties)
- There's a possibility of deducting vehicle expenses if you only own one property, but if you do part or all of the repairs and maintenance of your properties yourself (transporting materials and tools), you cannot deduct rent collection expenses (ie. gas)
- Property taxes, legal fees involving contracts, utilities, insurance
While taxes may not be exciting, owning your own property is! At Sweetly Real Estate, our team is skilled in delivering exactly what our clients and customers are looking for in a home. And whether you’re ready to buy or looking to sell, our unique real estate processes are sure to surprise and delight you. At Sweetly, we believe in delivering a better, sweeter experience to our clients. To get started on your real estate adventure, reach out to us via email at email@example.com or give us a call at 780.477.9338. You can also fill out our general inquiry form here on our website!