If you own a property in Canada that generates income, such as a rental property, your mortgage interest tax may be deductible in certain situations. This applies not only to rental properties but also to primary residences, places of business, or even homes where you work from.

That said, there are several ways for Canadians to understand and claim the deduction of mortgage interest tax on real estate. In this context, we will focus on how to claim it specifically for rental properties in Canada.

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Can You Deduct Mortgage Interest on Rental Properties in Canada?

As per the Canadian government guidelines published on April 25, 2022, it is possible for Canadian property owners to deduct mortgage interest tax on rental properties. Additionally, property owners may also claim the operating expenses of their rental property if mortgage interest is a crucial component of it.

This article will explore the tax deductions available for rental mortgage interest in Canada and provide a step-by-step guide on how to claim them on your tax returns.

Calculating the Percentage Deduction of Mortgage Tax on Rental Property in Canada

As a Canadian property owner who earns rental income, you may be eligible to deduct your mortgage interest on your taxes. The Canadian government has specific guidelines for rental property owners when it comes to claiming this deduction. In this blog, we will discuss how to calculate the percentage deduction of mortgage tax on rental property in Canada.

100% Deduction

If your entire rental property is rented out for the whole year, you can deduct 100% of the mortgage interest on your rental income.

Partial Deduction

If you rent out your property for only a portion of the year, you must adjust your mortgage interest tax deduction accordingly. For example, if you rent out your house for 6 months out of 12, you would deduct 50% of the mortgage interest.

Portion of Property Rented Out

If only a portion of your property is rented out for the full year, you can calculate the percentage deduction of mortgage tax by dividing the area of the rental space by the total area of the property. For instance, if you rent out a 500-square-foot basement suite and the total property size is 2000 square feet, you can deduct 25% of the mortgage interest.

Portion of Property Rented Out for Part of the Year

If you rent out a portion of your property for only part of the year, you can calculate the percentage deduction of mortgage tax by dividing the size of the rental space by the number of months you rented it out. For example, if you rented out an individual room that is 300 square feet for 4 months, you can divide 300 by 4 to get the percentage deduction of mortgage tax for rental properties.

While these calculations may seem straightforward, it’s always best to consult with tax professionals for your particular case.

Also Read: Guide to Filing Tax Returns as a Couple in Canada

Deductible Rental Expenses for Mortgage Tax

The Canadian government’s official website released a statement on April 25th, 2022 that outlines the rental expenses eligible for mortgage tax deduction. The statement clarifies that only current expenses and capital expenses are eligible for deduction.

Current expenses are those that occur over a short period of time, such as putting up wallpaper. Capital expenses, on the other hand, are those that provide long-term benefits, such as upgrading floor tiles or installing a garage to increase property value.

To help clarify, here is a list of the rental expenses that you can deduct mortgage tax from:

• Property taxes
• Repairs and maintenance
• Advertising
• Insurance
• Interest and bank charges
• Utilities
• Salaries
• Travel expenses
• Other rental expenses

Also Read: Tips for Successfully Selling Your Business in Canada

How to Claim the Mortgage Tax Deduction for Rental Property Owners in Canada?

To claim rental income and expenses for their rental property, owners can use Form T776. One way to do this is by watching tutorials on YouTube or searching on Google. Alternatively, online filing software like Wealth simple Tax, Vertex, and Canada.ca can be used for easy calculations for rental properties. Consulting experts is also an option for citizens to determine deductible amounts based on their specific situation, as mentioned earlier.

In Summary,

In this blog post, we discussed the tax-deductible mortgage interest in Canada, particularly on rental properties. We also covered the calculation of the percentage deduction of mortgage tax in four situations: when the entire property is rented out for the whole year, when the entire property is rented out for part of the year, when a portion of the rental properties are rented out for the full year, and when a portion of the property is rented out for part of the year. Additionally, we mentioned that rental expenses can also be deducted from your mortgage tax form.

Many Canadians are not aware of the benefits of claiming their interest tax deductions on rental properties, and the government’s guidelines can be confusing. However, understanding these calculations and methods can help you save money and even assist others in doing the same. Once you have the proper knowledge, you can confidently claim your deductions and ensure that no one impedes your progress.