Tax season is fast coming to an end. As a homeowner, do you know how to maximize your tax deductions? Fiscal grey areas do exist that can cause confusion.
The answer hinges on one key factor: how you use your property.
Principal residence? Rental income? Working from home? Different rules apply.
Principal residence: Few Deductions but One Major Benefit
Simply owning your principal residence doesn’t entitle you to tax deductions.
Contrary to popular opinion, you can’t claim: your mortgage payments, your municipal and school taxes, your home renovations, or your home insurance.
This may come as a disappointment, but homeownership does offer one major advantage:
The sale of a principal residence doesn’t generally incur capital gains taxes.
In other words, if your property appreciates in value, you aren’t usually taxed on that gain… a considerable long-term benefit!
As a homeowner, you may still be eligible for tax refunds under certain circumstances, like if you work from home or rent out a room to a tenant. Read on to learn more!
Telework: The Eligible Expenses
The number of people working from home has grown significantly in recent years. Are you one of them?
If you haven’t already done so, you may be able to deduct a portion of certain expenses each year when filing your tax return. You must, of course, meet the eligibility criteria (such as using a dedicated office space on a regular basis).
For example, you might deduct part of the bills for:
- Electricity and heating
- Internet connection
- Maintenance
- Specific repairs
The standard guideline is to calculate the percentage of your home you actually use for work purposes (e.g., one of your dwelling’s eight rooms = 12.5%).
Please note: these deductions are subject certain conditions and vary depending on your status (self-employed or employed). Furthermore, employed individuals often need to provide a form completed by their employer.
Room Rental: Where the Savings Really Add Up
Landlords who rent units to tenants already know which expenses they can claim on their tax returns. But what about “small-scale landlords,” those who decide to convert a basement into an apartment, for example?
Renting out part of your home may seem like a great idea… but it comes with tax implications. Some good, some not so good!
Revenue Québec’s website is clear on this point: if you derive income from renting out all or part of your house or residential building, you must declare it on your tax return.
For example, the government may tax a portion of the profit earned when you sell your property, and you must distinguish between your personal use costs and rental costs.
People frequently misinterpret this point, which can lead to significant long-term consequences.
But there are also advantages!
If you rent out a room (or part of your home), you can deduct several expenses:
- Mortgage interest (not the capital)
- Municipal and school taxes
- Insurance
- Maintenance and repair costs
- Management or advertising costs
- Utility bills (if included in the rent)
- Renovations
Good to know: certain renovation expenses must be amortized over time rather than deducted immediately (e.g., roofing, extensions). Your accountant can perform the necessary calculations.
Common Mistakes to Avoid
Here are some traps that homeowners often fall into:
- Claiming personal renovations as if they were for a rental property.
- Failing to declare rental income (even if earned only on an occasional basis).
- Confusing repairs (deductible) with improvements (depreciable).
- Ignoring the tax implications of modifying your residence’s use.
Tax rules are constantly evolving and there are many nuances to consider. An accountant or tax specialist will be able to advise you!