Your home is a tax shelter
(NC) Buying a home may be the biggest financial and emotional decision of your life and it's a costly investment — but there are tax benefits.
New homeowners in 2013 can claim the Homebuyers' Tax Credit, which offers $750 in tax savings. This credit can be split between a couple if both are first-time home buyers.
“You don't need to provide a receipt to make this claim,” says Caroline Battista, a tax analyst with H&R Block. “However, if the CRA requests it, you will need to have paperwork to prove that you bought a house last year.”
First-time homebuyers can also borrow up to $25,000 from their Registered Retirement Savings Plan (RRSP) for a down payment under the Home Buyers Plan (HBP). If you took advantage of the HBP, you have two years before the CRA will ask you to start paying it back. If you do not repay, the annual payment will be considered income.
Perhaps the most substantial tax benefit for homeowners, Battista says, occurs when they sell the property.
“Every taxpayer is allowed a capital gains exemption on their principal residence. This means that you will not have to report the capital gain on your home,” she explains. “But on the flip side, if property values drop when you decide to sell your home, you cannot claim the capital loss.”
In order to be considered a principal residence, homeowners must have lived in the home at some point in the year, although some exemptions can apply.
“If you move out or rent all, or part of your home, you may be able to apply for an exemption,” she continued. “The capital gains exemption is one of the best tax breaks available, so make sure you understand all the rules to take advantage of it.”
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