Is Mortgage Interest Tax Deductible in Alberta?
In Canada, the topic of mortgage interest tax deductibility can be quite complicated, especially for residents of Alberta. Unlike in the United States, where mortgage interest is commonly deductible, the rules in Canada differ significantly.
Most notably, for the majority of homeowners in Alberta, mortgage interest on a primary residence is generally not tax-deductible. However, if your property is used to generate rental income, you may be eligible for tax deductions.
Key Takeaways
Mortgage interest on a primary home is usually not deductible.
Rental properties and properties used for business activities usually qualify for mortgage interest deductions.
Proper documentation is essential for claiming deductions.
Mortgage Interest Deduction in Canada
In Canada, mortgage interest is generally not tax-deductible for your primary residence. Unlike other countries, Canada does not allow homeowners to deduct mortgage interest from their taxes for their main home.
That being said, if you’ve paid off your mortgage and then borrow against your primary residence, potentially with a HELOC, to invest the funds elsewhere, the interest you pay on the money borrowed can be written off against income.
If you own rental properties, the situation is different. For rental properties, you can deduct the mortgage interest as a business expense if your property is used to generate rental income.
When part of your home is used for business or rented out, partial deductions may apply, but you can only claim the portion related to the business use.
Property and maintenance costs are also deductible for rental properties. This includes repairs, maintenance, and property taxes that directly affect income generation.
Eligibility for Mortgage Interest Deduction in Alberta
In Alberta, the rules are the same. Mortgage interest is tax-deductible if the property is used to earn income. This includes properties used for rentals, business operations, or professional activities.
The “borrowing to invest” rules also apply in Alberta. If you withdraw equity from your property to invest (borrow to invest), the interest on the money borrowed (even if it was borrowed against your principal residence) is a write-off against your income.
Calculating Mortgage Interest Tax Deduction Amount
To calculate your deduction, gather records of the total mortgage interest paid within the tax year. If your property is fully rented, the entire interest is deductible.
If only part of the property is rented, calculate the proportionate interest. For instance, if 20% of your home is rented, 20% of the interest could be deductible.
For partial deductions, it’s crucial to document this calculation accurately and in compliance with CRA requirements.
Documentation and Record-Keeping for Mortgage Interest Deduction
To claim a mortgage interest deduction in Alberta, keeping accurate records is crucial. This involves maintaining copies of all mortgage statements and interest payment receipts. These documents prove the amount of interest paid throughout the tax year.
When your property generates rental income, ensure to keep a detailed record of all rental income and expenses. Use Form T776 for reporting, as required by the Canada Revenue Agency.
You should also organize any fees related to your mortgage, like legal fees or brokerage fees. These expenses can often be claimed over several years, so storing related documents for future use is wise.
Once you have these records, keep them for at least six years after the related tax year. This ensures you are prepared if the CRA requests more information about your claims.
Can You Deduct Mortgage Interest from Your Taxes?
Mortgage interest and taxes can be a complex topic, so it’s crucial to get the right advice. The mortgage experts at Spire Mortgage can help you better understand your mortgage interest and whether it will be tax deductible.
Contact Spire Mortgage to learn if your mortgage interest is tax deductible.
