Tax Deductions for Vacation Homes

Vacation properties can be used in a mix of ways for home buyers, whether that be for rental profit or strict personal use. Although vacation homes are serious investments, there are many ways to save depending on how it’s used throughout the year. Those considering a home vacation investment in Canada can check out how to make the most of deductible expenses below.

Before deducting vacation home expenses homeowners need to assess how they’re using their property. A personal-use property is a property that is used primarily for leisure and qualifies for fewer deductions than a vacation home used as a rental property. A vacation home used as a rental qualifies for more deductions but may be more difficult to finance.

Vacation homes are riskier investments to financial institutions because they are usually second residences. To qualify for a home loan vacation, homeowners have to occupy the property at least partially through the year. The home must also be accessible and functional year-round. Vacation properties that are only used as rental units are considered investment properties and are subject to different loan requirements.

As of the new year, some vacation homeowners who use their properties primarily for leisure may be exempt from the underused housing tax. The vacation property must be either located in an eligible area, used as a primary residence, seasonally inaccessible or unsuitable for year-round use, uninhabitable, or newly constructed. Vacation owners may also be exempt if they are a partner or trustee of a specific Canadian partnership, trust, or corporation, a new owner, or a representative for a deceased person.

There are several tax deductions that rental owners can make when deducting vacation home expenses. From property taxes to repairs and advertisement, here’s a list of some common expenses vacation home renters can save on.

Renters can qualify for property tax deductions during the period their property was available to rent and when it was marketed. However, renters cannot deduct property taxes during the time it takes to complete home renovations. Renters should research their municipality’s current property tax rate when estimating tax deductions.

Insurance premiums required for vacation home properties may be deducted for the year it was rented out. Be sure to only deduct premiums for the current year if an insurance policy offers coverage for more than one year.

Vacation home expenses related to advertising on websites, newspapers, or trade publications can all be deducted from taxes. Even if the property remains vacant during the advertisement period, expenses can still be written off.

Any labor or materials used to make minor repairs or maintenance completed on a vacation home rental can also be deducted from annual taxes. This doesn’t include a renter’s own labor or repairs that are capital in nature. In other words, repairs must return a property to its original condition rather than increasing its value.

If a renter hires workers to manage a rental property for them, they can deduct salaries paid to employees. This includes work like maintenance providers, property managers, legal services, office supplies needed, and any other professional help related to a property’s management. A renter can even include a real estate agent’s commission as outlays and expenses when recording deductible expenses.

To deduct an employee’s salary correctly, renters must deduct their portion related to a Canada Pension Plan, Quebec Pension Plan, or Employment Insurance Premiums if applicable.

Vacation renters deducting vacation home expenses can also deduct travel fees in specific circumstances. These include collecting rent, managing a property, or supervising repairs. If a vehicle is being used for both personal and business-related responsibilities, then only a part of the expenses can be deducted. Travel costs only include the fees it takes to get to a property and does not apply to fees once a renter has arrived, such as food or lodging.

Renters can also claim a depreciation deductible as a Capital Cost Allowance (CCA). Renters who do this can only claim as much as equals zero net rental income. Renters aren’t allowed to create a rental loss or make a current loss worse through a CCA. However, renters can claim other rental losses like uncollectible rent.

Those who use their vacation home for personal use and short-term renting must register for the GST/HST before buying the property. The GST/HST only applies to individuals who own properties that qualify as a vacation home and may include a detached or semi-detached house, rowhouse unit, townhouse, or condo. A short-term rental is a property that’s rented out for under a month at a time. Purchasers must also not exceed $30,000 in gross rental revenue in the past four calendar quarters.

If renters change their use patterns by 10% or more, they may be eligible to claim an ITC or have to pay back an ITC. An ITC can be claimed if vacation owners use their property for personal use exceeding 50% of the year but not over 90% of the year. Anytime a vacation homeowner changes the use of their property, they should check use rules to ensure the property is classified under the right category. This ensures homeowners they’re qualifying for as many deductibles as possible.

Purchasing a vacation home rental can serve many purposes to a homeowner, whether that be purely leisure, a rental property, or a little bit of both. Although fewer exemptions apply for vacation properties used for purely personal use, they are much easier to finance than properties used as rentals. There are many opportunities for deducting vacation home expenses from rental properties. A mixed-use property is a great way to earn a small profit while having someplace to escape to. If you’re interested in starting a vacation home search, contact The McKelvie Group and let one of their experienced agents guide you through the process.