Top Homeowner Tax Deductions That Decrease Your Tax Burden

Sadly, you can’t avoid paying taxes, and we all need to pay our fair share. However, paying your fair share shouldn’t place an unjust burden on you. As a homeowner, your tax burden is doubled because you pay both income and property taxes. To decrease that burden and boost your tax savings, take advantage of these homeowner tax deductions…and use your tax savings to go on a vacation, increase your child’s college/university fund, build on your retirement fund, or complete another home improvement project.

First-time Home Buyers Tax Credit

First-time home buyers may be eligible for a 15 per-cent income tax credit for closing costs.  This 15 percent credit is based on a maximum of $5,000 of home purchase costs (e.g. legal fees, land transfer taxes, etc.), meaning a maximum tax relief of $750.

Typically, an individual is considered a first-time home buyer if neither the individual nor the individual’s spouse or common-law partner owned and lived in another home in the calendar year of the home purchase or in any of the four preceding calendar years.

RRSP Homebuyer’s Plan

If you buy the qualifying home together with your spouse or other individuals, each of you can withdraw up to $25,000.  This means that up to $25,000 per person could be withdrawn tax-free from RRSPs to buy or build a principal residence. Couples — including common-law — will be able to withdraw up to $50,000.

Home buyers withdrawing funds do not have to pay income tax on the amount withdrawn, as long as the funds are repaid into an RRSP in the future.

The 15-year repayment period will begin in the second calendar year following the calendar year in which the withdrawal is made. In addition, a qualifying home must generally be acquired before October 1 of the calendar year following the year of withdrawal. For example, those making withdrawals under the plan in 2009 will have until October 1, 2010 to acquire a qualifying home and their first annual repayment will be due by the end of 2011 or the first two months of 2012.

The one key thing to note is this: you have to meet the first-time buyer’s condition. You are not considered a first-time home buyer if you or your spouse owned a home that you occupied as your principal place of residence in the past 5 years. To determine past 5 years, the 4 years preceding the year you make your withdrawal plus the period in the year you make your withdrawal ending 31 days before your withdrawal is the rule adopted.

HST New Housing Rebate

You may be eligible to claim a rebate for a part of the HST you pay on the purchase price of a newly constructed home or the cost of building your home if:

1. you buy a new or substantially renovated home (including the land or if you lease the land) from a builder;
2. you buy a new mobile home (including a modular home) or a floating home from a builder or vendor;
3. you buy a share of capital stock of a co-operative housing corporation;
4. you construct or substantially renovate your own home, or carry out a major addition (or hire another person to do so); or
5. your home is destroyed in a fire and is subsequently rebuilt.

Land Transfer Tax Rebates

First-time buyers of new and re-sale homes are eligible to receive rebates of the provincial and Toronto land transfer taxes. The maximum provincial land transfer tax (LTT) rebate for first-time buyers is $2,000 and the maximum Toronto LTT rebate for first-time buyers is $3,725.

Rental Income

If you rent a property you own or that you have use of, when you report this rental income, you can claim allowable expenses such as advertising, insurance and interest on money you borrow to buy or improve the property.

Taxpayers Who Work From Home

If you work from home, there are a number of expenses that you can deduct if you are either self-employed, a commissioned employee or a professional.  Examples of the type of expenses that you can claim include heating, home insurance, electricity and cleaning materials.

Appealing Your Assessment to Lower Your Property Taxes

City of Toronto 2016 interim property tax bills were mailed to property owners between January 7th and January 31st, 2016. The 2016 interim property tax bill was the first of two bills issued for 2016. The 2016 final property tax bill will be mailed in May, 2016.

Although property taxes in Toronto are here to stay, you should make sure that you are paying a reasonable amount based on the true value of your home and land. Many homes get overvalued because assessors misjudge in valuing a home and homeowners don’t pay attention to these mistakes. Consequently, homeowners unwittingly pay more than they should in property taxes.

There are 3 steps to take if you don’t agree with your property’s assessment:

1. Visit aboutmyproperty.ca to check all the information that the Municipal Property Assessment Corporation (MPAC) has on file for your property and also get a detailed Property Profile Report.  This is a great opportunity to check if any information is out of date or incorrect (if so, you can send updates to MPAC directly through the website). You can also obtain detailed information on up to six properties MPAC believes to be comparable to yours, free of charge, by submitting a request.
2. Request a copy of the home appraisal from your lender. Your appraisal will include everything you need: comparable properties, photos and the estimated value.
3. Reach out to your real estate agent/broker and request a report of similar properties that have recently sold in your neighbourhood. Typically, we can find three to five approximate values of comparable properties similar to yours, and these comps can then be used to support your claim that your home is overvalued. This is especially useful if the assessor used poor historical sales data.

The good news is that if you feel your assessed value as of the valuation date or property classification is not correct, MPAC will review it free of charge – this is called a Request for Reconsideration. For the 2016 tax year, your deadline to file a RfR with MPAC is March 31, 2016 . You can potentially lower your property tax burden by filing an appeal, which essentially shows that your home has been overvalued, meaning that your tax assessment claims your property is worth more than it is.

Once you are ready to file your appeal, you will need to make sure to include as many reasons as possible as to why you believe your assessment should be lower. It is always a good idea to include a copy of your property’s appraisal and photos of your neighbourhood.

Even if the number on the tax assessment seems close, you should still consider appealing your property tax. The typical savings from a successful tax appeal can be over 15%!

In January 2016, the average sale price in the GTA was $631,092. So, if you’re able to reduce your assessed value by 15 percent to $536,428 and consequently save 15 percent on your tax bill, your new tax bill will be about $3,785.06 (down from $4,453.01). That’s a savings of $667.95!

Need help getting information to protest your property taxes? 

Contact me directly and we’ll schedule time to produce some comparable property values to use for your documentation, ultimately leading you in the right direction towards saving you money on your taxes.