Tax Season Is Here – How Does Your Mortgage Fit In?

Tax Season Is Here – How Does Your Mortgage Fit In?

Discussion of taxes and where mortgages fit in at a round table

We have good news and bad news. The good news is that you don’t have to file anything for your mortgage on your income taxes. The bad news is that most of us do not get to claim mortgages / mortgage interest as a deduction. While our neighbours down south get to claim interest on their mortgages as tax deductions, the Canadian tax system does not allow it. There are exceptions, however, so continue reading to learn more.

I Run A Business Out Of My Home – Can I Claim Mortgage Interest?

If you operate a business out of your home, you can deduct some work related expenses. This might include hydro, telephone, and internet, but you still can’t deduct mortgage interest. In the event your home business becomes big enough, you can contact the Canada Revenue Agency to find out if your home qualifies as a business. If it does qualify, you might be allowed to claim expenses like supplies, property taxes, and condominium fees.

My Home Produces Rental Income – Can I Claim Mortgage Interest?

Yes, if your property produces rental income, it’s considered an investment property. If, say, you rent out more than one of your rooms in your home and earn income from a tenant or tenants, your expenses will likely be considered rental-related and possibly be claimable on your taxes. In cases where your property does not receive income from business or rent, you cannot claim any mortgage interest tax.

Is It A Good Idea To Make My Mortgage Interest Tax Deductible?

This can only be answered on a case by case basis. Making your mortgage interest tax deductible by turning your home into an investment property is possible, but it comes along with risk. Your rental income might not cover your mortgage and you might never get back what you have invested in your property. It might take years until you earn a positive return, and if you do decide to sell your house, you’ll have to pay taxes on whatever profit you make. If this is something you are interested in, be sure to discuss it with a financial consultant or a tax expert first.

There’s A Silver Lining – Canadians Get Tax Free Capital Gains On Their Primary Residence

While Americans are luckier with their mortgage interest deduction policy, it isn’t all bad for us Canadians. If you ever sell your principal residence, and you make a profit from the sale, you do not pay taxes on this profit. This is why we caution you against converting your home into an income property – if you sell an income property at a profit, you will have to capital gain taxes.

Collin Bruce

Collin Bruce is a mortgage broker / agent that specializes in finding homes for first time home buyers in Edmonton. That said, if you’re looking for an investment property, we can help there too. We’ll get you the best interest rates and mortgage insurance products on the market. Contact us today for any and all questions.