A portion of the property is used for business exclusively In such cases, the mortgage interest paid on the property can be deducted, in full, as a business expense. The space is used solely for business when the business is closed the space is idle. Again, this depends on how much of the property area is used for business, and whether that space is also used for personal activities, as explained below: The entire property used for business exclusivelyĪn example here could be a commercial property where you operate a bike shop. And, just like with rental income, in some cases, 100% of the mortgage interest can be deducted, while in other cases it will just be a portion of the interest paid. The mortgage tax deduction in Canada also applies to properties where you operate a business or earn professional income. Mortgage interest tax deduction on business or professional income If you’re unsure what your mortgage interest payments are, refer to your annual mortgage statement. The portion of your mortgage payment that goes toward paying down the original debt (also called the principal), is not an eligible expense. Note that in all cases, it is only the interest payments on the mortgage that are included in the deduction calculations. In that case, you would first calculate the size of the second bedroom (and shared spaces, divided by two) as a proportion of the total condo suite, and then divide that percentage by four, since the rental took place for just one-quarter of the year (three months). For example, perhaps you decided it was best not to have a roommate in your condo’s second bedroom during the pandemic and so you re-occupied that space as of April 1, 2020. ![]() Here, the percentage of mortgage interest eligible for the deduction becomes even smaller. A portion of the property rented out for part of the year primary residence, you would be allowed to deduct a third (33.33%) of the mortgage interest you paid. So, for example, if you rent out a 600-sq.-ft. In these situations, your mortgage interest tax deduction must be adjusted to reflect the area of the rental space as compared to the total area of the property. Say you own and live in a two-bedroom condo where you rent out the second bedroom to a roommate, or you have a tenant in the basement of your house. A portion of the property rented out for the full year So, for example, if you had a short-term Airbnb tenant in your primary residence (or cottage) for a month while you were out of the country, you could deduct 1/12th (8.3%) of the annual mortgage interest paid on that property from your rental income. The entire property rented out for part of the yearĪssuming the property is for your own personal use the rest of the time, you must adjust the mortgage interest tax deduction based on the portion of the tax year that the property was rented out. If, for example, you have a tenant on an annual lease in a condo you purchased for investment purposes, you can deduct 100% of the mortgage interest paid on that property from your rental income. The percentage deduction depends on how much of the property is rented out and for what timeframe, as explained below: The entire property rented out for the full year In other cases, you can only deduct a portion of the interest you paid. In some cases, you can deduct 100% of the mortgage interest. These eligible expenses include anything from site maintenance and repair costs to property taxes-as well as the interest charges paid on the mortgage. When you’re a landlord, there are a number of expenses you can deduct from your rental income to lower the tax hit on those earnings. Mortgage interest tax deduction on rental income Still confused? Below we break down the rules for deducting mortgage interest in each scenario. Even then, you can only deduct the business-use portion of your interest payments. ![]() In general, you can deduct mortgage interest paid on a house, condo, vacation home, commercial space, or any other real estate you rent out (fully or partially), or where you operate a business. This might leave you wondering: is mortgage interest tax-deductible in Canada? The answer is an unequivocal maybe since the mortgage tax deduction in Canada applies only to properties used for generating income, which can include a primary residence. If you follow any U.S.-based personal finance content, you may have heard that our neighbours to the south can claim a mortgage interest tax deduction on any property, including a primary residence.
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