Can I deduct the repayments of principal on my mortgage?

January 10, 2024

Hi there! If you're a landlord, there are some rental expenses that you can't deduct on your tax return, like mortgage principal (also known as equity).

When you take out a mortgage to buy a property, you're borrowing money from the bank. When you make your mortgage payments, part of the payment goes towards paying back the money you borrowed, and the other part goes towards interest. The interest you pay can be claimed as a tax deduction, but the part that goes towards paying back the money you borrowed cannot be claimed as a deduction because it's not considered an expense.

Think of it like borrowing money from a friend or family member. When you borrow the money, it's not considered an expense because you haven't paid for anything yet. Only when you spend the money on something can it be considered an expense. When you repay the loan, it's just you giving back the money you borrowed, so it's not an expense.

There are other common types of items you cannot claim as a rental expense.

Let's break them down for you:

  1. Land transfer taxes: When you bought your property, you may have paid land transfer taxes. Unfortunately, you can't deduct these on your tax return. But don't worry, you can add these costs to the cost of your property, which will help reduce the amount of capital gains tax you might have to pay when you sell it.
  2. Mortgage principal: You also can't deduct the repayments of principal on your mortgage or loan for your rental property. However, you can deduct the interest part of your mortgage, which you'll find on Line 8710 of your tax return.
  3. Penalties: Any penalties you see on your notice of assessment or notice of reassessment can't be deducted on your tax return.
  4. Value of your own labour: Unfortunately, you can't deduct the value of your own services or labour, so any work you do on the property yourself won't help reduce your tax bill.
  5. Personal portion of expenses: If you rent part of your home, you can claim the expenses that relate to the rented area of the building. To figure out how much you can deduct, you'll need to divide the expenses that relate to the whole property between your personal part and the rented area. You can use either the square metres or the number of rooms you're renting to calculate this.

For example, if you're renting 2 rooms in a 5-room house, you can deduct 100% of the expenses that relate only to the rented rooms, like repairs and maintenance, and 40% of the expenses that relate to the whole building, like taxes and insurance.

Remember, if you're claiming expenses for renting part of your property, you need to have a reasonable expectation of making a profit from it.

We hope this helps! For more information, check out the Canadian government's website or contact a CPA.

--
Disclaimer
The information provided on this page is intended to provide general information. The information does not take into account your personal situation and is not intended to be used without a specific consultation. Lucas CPA Professional Corporation will not be held liable for any problems that arise from the usage of the information provided on this page.

More Blogs →Back to Home Page →