In the United States, residents have the luxury of writing off mortgage interest on their taxes. Unfortunately, there are no comparable tax savings for home owners in Canada, but for some, there are a few options that can make a difference.
1. Are you self-employed and have an office in your home? If you use part of your home for business, you are entitled to write off a portion of your mortgage interest. For example, if your office is 1/8 the size of your home, you can write off 1/8 of your mortgage interest. Of course, there are some other things to consider, so talk to your accountant or tax preparer about your options.
2. If you hold an investment property, the mortgage interest on that property can be written off.
3. If you are a first time home buyer (and first-timers aren’t always just first-timers, check out the provincial and federal criteria) you’ll love some of the tax breaks and other programs you are eligible for. Common ones are:
a. The BC Land Transfer Tax Credit – the BC Land Transfer Tax is paid by the purchaser to the province at the time the transaction closes. First time buyers are exempt from the tax on properties of a fair market value of up to $425,000. Properties over $425,000 will require a payment for the amount above the threshold. Talk to your real estate lawyer about whether you qualify.
b. First Time Homebuyers’ Tax Credit – this federal tax credit is part of Canada’s Economic Action Plan to help with the costs of purchasing a first home. Qualifying homes purchased after Jan. 27, 2009 will result in a $750 tax credit to first time buyers. This credit is claimable on the tax year the house was purchased in.
c. Don’t forget the RRSP withdrawal plan for first time buyers. By using your accumulated RRSPs you might find it easier to come up with a down payment.
Is there more? Maybe. In each new budget year, provincial and Canadian governments announce their tax incentives. You will want to talk to your tax preparer or accountant or even do a Google search, to see what is new. For example, if you bought a new house that closed before April 2013 you might be eligible for a 2012 tax year incentive.
Ultimately, you need a good accountant or tax preparer on your side to ensure you get the benefits you are entitled to. Get recommendations, ask around and know that the person you’re working with is up on all the options.
Post by Marci Deane, Mortgage Broker askmarci.ca