Is Rental Mortgage Interest Tax Deductible in Canada?

Your mortgage interest tax might be deductible in various situations if you own a property in Canada that generates income. Whether it is your primary residence, a rental property, or a place of business or work from home, you can perhaps declare your right for mortgage interest on your property.

However, there are several methods for Canadians to comprehend and claim that mortgage interest tax is deductible on real estate. However, today we will look at how to claim it on rental properties in Canada.

Is mortgage interest tax deductible on rental property in Canada?

According to Canadian government guidelines published on April 25, 2022, say that Canadians who own rental property can claim a mortgage interest tax deduction on rental property. Furthermore, the home owner can claim back the cost of operating a rental property if their mortgage interest is a fundamental part of it.

This blog will discuss tax deductions for rental mortgage interest in Canada and demonstrate how to claim them on your taxes.

The percentage deduction of mortgage tax on rental property

According to an article published by Nesto mortgage expert on February 1, 2022, stated that the official line of the Canadian government cut off the certain interest that you on any pay lend some hard cash to either buy the property or improve your existing rental property. 

So let me begin by telling you what percentage is deducted from mortgage tax on rental property.

  1. The entire property is rented out for the whole year

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

  1. The entire property is rented out for part of the year

If you rent out your property for some certain number of months, you must adjust your mortgage interest tax deduction accordingly. You cannot deduct 100% because you are renting it for part of the year. For instance, if you rent out your house for 6 months or 4 months to a business for primary residency, you will minus (6/12 or 0.5) (4/12 or 0.3) from your total yearly interest.

  1. A portion of the property is rented out for the full year

A portion or part of the property usually means individual rooms, studio rooms, or cellar rooms. A percentage deduction of mortgage tax on the portion of property rented out for the whole year is calculated by the area of rental space divided by the total area of the property. For example, if you rented a 500-square-foot basement suite and the total property size is 2000 square feet, you can deduct 25% of the mortgage interest.

  1. A portion of the property is rented out for part of the year

A portion of property rented out for part of the year is interesting to calculate and understand. Imagine you lost your job and your expenses kept piling up on your desk.

You decide you want to rent out a portion of the property for some months so that you can pay the expenses and find a job. However, you have no idea how to deduct mortgage interest tax on your rental income. 

What you can do is simply find the size of the total proportion you rented and divide it by the number of months you rented it out. If you rent an individual room and its size is 300 square feet, and the number of months you rented it out is 4, you will divide it with each other.

Here is how you can calculate the percentage deduction of mortgage tax on rental property. Remember, you can always consult experts regarding your calculations.

Rental expenses you can deduct mortgage tax from:

On April 25th, 2022, the government of Canada's official website published a statement of real estate rental guidelines to help citizens understand from which rental expense they can deduct mortgage tax. Current expenses or capital expenses are expenses mentioned in the rental guidelines from which you can deduct.

Current expenses are those expenses that occur after a small or brief period. For instance, putting wallpaper on a wall

Capital expenses are for a long period or those expenses which will be advantageous for a long period. For example, upgrading the floor tiles or installing a garage to increase the value of your property. 

So now let’s look at the list of deductible rental expenses:

  1. Property taxes
  2. Repairs and maintenance
  3. Advertising
  4. Insurance
  5. Interest and bank charges
  6. Utilities
  7. Repairs and maintenance
  8. Salaries
  9. Travel
  10. Other rental expenses

How can rental property owners claim the mortgage tax deduction in Canada?

Form T776 enables an owner renting his house to claim rental income and expenses. The easiest way to claim that is by searching for tutorials on YouTube or Google. In addition, you can also use online filing software like Wealthsimple Tax, Vertex, and Canada.ca for easy calculation. Another way is that citizens can also consult experts to look into their matters and find deductible amounts according to their situation as mentioned above.

Summary

In this blog we have talked about mortgage interest tax deductible in Canada, mortgage interest tax deductible on the rental property, and 4 situations in which the percentage deduction of mortgage tax on a rental property is calculated, like the entire property rented out for the whole year, the entire property rented out for part of the year, a portion of property rented out for the full year, and a portion of property rented out for part of the year. You can deduct rental expenses from your mortgage tax form. 

Many Canadians don’t understand the value of interest tax-deductible on their rental property. The government makes it more difficult instead of easing the path to help the citizens. However, having proper knowledge about how you can claim your money back is a genius understanding of your property. Remember, once you understand these complex methods and calculations, no one can impede your progress. You might be able to help other people and show them ways they can save money like you.

Written By:
Salman Rundhawa
Salman Rundhawa is the founder of Filing Taxes. Salman provides valuable tax planning, accounting, and income tax preparation services in Toronto, Mississauga, Oakville, and Hamilton.

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