Is My Mortgage Interest Tax-deductible Here in canada?
Taxes are an unavoidable part of life—and we all want to pay as little as possible, right? In Canada, you can cut down on your tax bill by claiming deductions like donations, student loan interest and child-care expenses. But did you know that mortgage interest is also tax-deductible? Let’s find out how it works.
In Canada, is the interest on my mortgage tax-deductible?
Yes, your mortgage can be tax-deductible in Canada. The property the mortgage belongs to must be used for generating income (whether that’s rental income, business or professional income). Primary residences also qualify for mortgage interest tax deductions.
Why use your mortgage for income tax deductions?
You should always try to claim as much on your taxes as possible. Doing so will lower the amount of tax you pay, meaning you’ll either lower the amount of taxes you pay or increase the amount of tax return you get from the government.
It’s important to know whether your mortgage interest is tax-deductible before you claim it at tax time. Here are a few situations where you might be able to deduct it.
Is mortgage interest tax-deductible in Canada on a rental property?
If you’re a landlord and you use your property to generate rental income, you can claim the interest on your mortgage on your taxes. The amount of interest deductible depends on how long your property has been used as a rental—for example, there are different amounts you can claim if it’s a long-term rental vs. a short-term rental, such as an Airbnb.
We’ll dive into those details in the next section.
How much mortgage interest can be from my taxes each year?
If a homeowner rents out his or her property for the entire year, that homeowner can claim 100% of the mortgage interest paid on that property.
However, if a homeowner operates his or her property as a short-term rental, they may only claim a portion of the interest paid on the home.
Do you rent out your entire home on a short term basis?
If you rent out your entire property as an Airbnb, you can only deduct mortgage interest based on the number of months it’s rented out. For example, if you rent it out for two months in the year, you can deduct 16.7% of your mortgage interest.
If you rent it out for six months in a year, you can claim 50%.
Renting only a portion of your home can make things a bit more complicated.
If you rent out your basement to a tenant for the year, you must adjust the portion of your mortgage interest deduction that relates to that part of your home. If your basement is 500 square feet and the rest of your home is 2,000 square feet, you can deduct 25% of your interest payments.
What if I only rent out a room?
If a portion of your home was rented for part of the year, you would need to calculate the amount of time it was rented during the year as well as the amount of space it occupies.
An example: You can deduct 12.5% of your mortgage interest if you rent out 500 square feet of your 2,000 square foot home for six months of the year. How we arrived at that calculation: The rental portion makes up 25% of the entire home and it was rented out half the year (so, 25 divided by 2).
Can I write off my mortgage interest if I work from home?
If you own your own business, you may be able to deduct expenses for the business use of your home workspace. To qualify, your space must meet one of two conditions: it’s your primary place of business or you use the space only to earn business income.
You can deduct mortgage interest and other household expenses, such as electricity, property taxes and heating, if you’re using part of your home or office for business purposes.
Say you use a room in your house that’s 100 square feet, out of 2,000 square feet total. You work in that room five days a week for the entire year. That works out to 5 percent of your home. If your electricity bill is $1,200 per year, then you can claim $42 for business use.
If this sounds confusing, don’t worry…your tax specialist can take care of all this for you!
One thing you should know about home mortgage interest is that it’s not tax-deductible if you work from home for an employer.
Be sure to consult with your tax specialist
Figuring out what you can and can’t claim on your taxes can be challenging and time-consuming. The best way to ensure that you claim only the deductions you deserve is to consult with an accountant.
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