Purchasing a home is a significant milestone in one’s life, often requiring a substantial financial commitment. Fortunately, there are several programs, credits, and considerations that can help individuals achieve their goal of homeownership. This article provides a simple overview of these resources and important factors to keep in mind when preparing for tax buying a home.
Preparing for Your First Tax For Buying Home Purchase
When it comes to buying your first home, there are a few important steps you can take beforehand. One of these steps is setting up a Tax-Free Savings Account (TFSA). This allows you to invest money towards your down payment while enjoying the benefit of tax-free withdrawals. By starting early and contributing to a registered savings account, your money can accumulate interest over time until you’re ready to make a withdrawal.
Additionally, the government has introduced the Tax-Free First Home Savings Account (FHSA) for the upcoming year. This account is specifically designed for Canadians under 40 years old who are saving for their first home. You can contribute up to $40,000 to this account and withdraw the funds tax-free to put towards your first home purchase. Unlike the RRSP Home Buyers Plan (HBP), there is no requirement to repay the withdrawn amount from the FHSA. With the HBP, you can withdraw up to $35,000 from your RRSP to buy or build a home, and you have up to 15 years to repay the withdrawn amounts.
Home Buyers Amount: Claiming up to $10,000 for Your First Home
If you’re purchasing your first home, you have the opportunity to claim the Home Buyers Amount, which has been increased to $10,000 this year from $5,000. To determine if your home qualifies, there are a few criteria to consider. Firstly, this must be your first home, and you or your spouse cannot have owned a home in the past four years. Most types of dwellings are eligible, including single-family houses, semi-detached houses, townhouses, mobile homes, and condos. However, for co-op dwellings, the eligibility depends on whether you have ownership or only a tenancy right. If you have ownership, it qualifies; if you have a tenancy right, it does not.
Home Buyers Amount for Individuals with Disabilities
Individuals with disabilities can claim the Home Buyers Amount even if it’s not their first home. The home must be suitable and better suited for the person with the disability, and they must reside in that home.
Renovation Tax Credits for Home Accessibility and Multigenerational Homes
If you’re renovating your home for disabilities or mobility issues related to old age, some of these renovations may be eligible for tax credits. Additionally, starting in 2023, the government is introducing a tax credit for those living in multigenerational homes.
The Home Accessibility Tax Credit aims to make homes more accessible and functional for individuals with disabilities. This credit provides 15% of up to $20,000 in renovation expenses, allowing you to receive a credit of up to $3,000.
For those residing in multigenerational homes where senior parents, adult children, or relatives with disabilities share the same dwelling, renovations may be necessary to accommodate everyone. In this case, you can claim the Multigenerational Home Renovation Credit, which provides 15% of up to $50,000 in renovation expenses. This credit can amount to up to $7,500. It’s important to note that these credits are non-refundable, meaning they can be used to offset other taxes owed, such as annual property taxes.
Plan Ahead for Annual Property Taxes
To prevent any unpleasant surprises during tax season, it’s advisable to gather information about the annual property taxes from the previous homeowners through your realtor. This will give you an idea of the amount you can expect to pay. It’s recommended to set aside funds with each paycheck specifically for property taxes. By allocating a portion of your income, such as $125 per paycheck, you can ensure that you’re prepared to cover the tax bill when it arrives. This approach is much more manageable than being hit with an unexpected $3,000 tax bill in April.
Higher Taxes for House Flippers
If you purchased a house with the intention of flipping it for profit, there are some important considerations regarding taxes. In recent years, the housing market has experienced significant fluctuations, leading to a rise in individuals buying properties for the purpose of flipping houses. However, the government has been taking measures to address potential misuse of primary home designation. Specifically, they are targeting cases where individuals falsely claim a flip house as their primary residence while actually living elsewhere with a partner.
To address this issue and regulate the fluctuating housing market, a new Anti-Flipping Tax for buying home will be introduced in 2023. Under this tax, if you sell a home that you’ve owned for less than 12 months, the government will assume it was intended for flipping and classify the proceeds as business income. As a result, you will be required to pay taxes on the sale accordingly, without the benefits of capital gains inclusion or the principal residence exemption. However, certain exceptions exist for life events that may necessitate the sale of a property within 12 months, such as death or divorce.
