A Guide to Understanding How Buying a Home Affects Taxes
Buying a home is a big accomplishment in Canada, but it also means thinking about taxes. This Real Estate Rockstar guide explains how owning a home affects your taxes.
Benefits for First-Time Home Buyers
Home Buyers' Amount (HBA): This program lets you claim a non-refundable tax credit of up to $5,000, saving you money on your taxes. To qualify, you cannot have owned a home with your spouse in the past four years.
Home Buyers' Plan (HBP): You can withdraw up to $35,000 tax-free from your Registered Retirement Savings Plan (RRSP) to use for your down payment. Remember, you need to repay this money to your RRSP within 15 years.
Taxes During Homeownership
Property Taxes: You'll pay an annual tax to your municipality based on the value of your property. The amount will vary depending on where you live and the type of property you own.
Mortgage Interest: The interest you pay on your mortgage is usually tax-deductible. Keep your mortgage statements for tax time.
Principal Residence Exemption (PRE): When you sell your main home (principal residence), you generally don't have to pay tax on the profit. However, if you own multiple properties, you need to choose which one qualifies for this exemption to avoid taxes on the sale of others.
Owning a Rental Property
The tax rules are different for rental properties. The income you earn from rent is considered taxable income. However, you can deduct certain expenses, such as repairs, utilities, and property taxes, to reduce your tax bill.
Additional Tax Tips
Home Improvement Expenses: Some renovations, like those that improve energy efficiency or accessibility, may qualify for tax credits.
Moving Expenses: If you move for work or your new home is closer to your job, you might be able to claim some moving expenses on your tax return.
Talk to a Tax Professional
Taxes can be complicated. To get the most benefits, consider talking to a qualified tax professional who knows about real estate. They can help you with tax planning so you can avoid headaches and maximize your savings.
Owning a home can be a great experience, and smart tax planning can help you keep more money in your pocket.
Sources
Government of Canada Homebuyer Incentives and Rebates - CMHC
