In the U.S., there is a provision that allows some homeowners to deduct mortgage interest on their tax returns. This can add up to substantial savings, but this deduction is not available in Canada.
For home owners, the tax benefit comes when you sell. Every taxpayer is allowed a capital gains exemption on their principal residence. American homeowners only receive a principal residence exemption on the first $250,000 of the capital gain.
So even if you live in a hot property market, you will not have to report the capital gain on your home. On the other hand, if property values are down when you decide to sell your home, you are not allowed to claim the capital loss on your return.
You must have lived in your home at some point in the year in order for you to designate it as your principal residence for that year. However, there are elections available that allow you to continue designating your home as your principal residence if you change its use. But you can only have one principal residence – if you own more than one property, you will probably be reporting capital gains on the second home.
Self-employed Canadians can claim mortgage interest on their principal residence if they work in their homes. They can claim a percentage of the interest based on how much space the office takes up in the home. Employees who work from home are not allowed to claim mortgage interest as an expense.
If you are a first-time homebuyer, the homebuyers’ tax credit offers $750 in tax savings. And seniors in Ontario and B.C. may be able to take advantage of provincial home renovation credits that help them stay in their homes.
The American mortgage interest deduction sounds good, but delaying the tax benefit until you sell your home could provide bigger savings and remember, it helped fuel the sub-prime mortgage crisis in the U.S. So it may look attractive right now but waiting for your tax break may be better in the long run.