As a Toronto homeowner, you may be considering renovating your home to increase its value, make it more comfortable, or adapt it to your lifestyle. Do you want your kitchen cabinet tall, custom cabinetry in the butler’s pantry, or maybe a total bathroom remodel? A major question homeowners have is – can I deduct any of these renovation costs from my taxes? Read on for answers.
Capital Improvements vs Repairs
There is an important distinction between capital improvements and repairs when it comes to tax deductions. Does a bathroom upgrade, custom a bathroom cabinet tall for toiletries and towels, or a total bedroom addition? Capital improvements, such as adding another room or finishing a basement, increase your home’s value and usable space. These types of major renovations are typically not tax deductible in Canada. Minor repairs to restore functionality, like fixing leaks or painting, may qualify if part of your home is used for business purposes.
Home Office Renovation Deductions
If you use a dedicated space in your home exclusively as a home office for your business, you may be able to deduct a portion of any related renovation costs. For example, if you renovate the spare bedroom into a home office that takes up 10% of your total household space, you can deduct 10% of the renovation costs. The space must be used regularly and exclusively for your self-employed business activities.
Rental Suite Renovations
Adding a rental suite such as a basement apartment to your home or renovating an existing rental unit can qualify for tax deductions. Any expenses directly related to the rental portion of your home, from mortgage interest to renovation costs, can be deducted from the rental income you report. This includes renovations to common areas like hallways and laundry that are shared with your rental unit.
Principal Residence Exemption
While most home renovation costs do not directly qualify for tax deductions, principal residences in Canada qualify for the Principal Residence Exemption. This allows you to avoid paying capital gains tax on profits when you eventually sell your home. Home improvements help increase your principal residence value, enabling greater utilization of this exemption.
Document Everything
Keep all renovation receipts and documents in case the use of part of your home changes to qualifying business or rental activities in the future. Renovation costs add to the adjusted cost base of your home, which is used in capital gains calculations when you sell. Talk to your accountant about any major home renovations to understand what expenses may qualify for deductions.
Contact Parada Kitchens Today
In most cases, Toronto homeowners cannot directly deduct renovations made to their principal residence from their personal income taxes. Exceptions include spaces used exclusively for business or rental purposes. While home renovation costs do not typically produce tax deductions, they can pay off in the long run by increasing your property value and maximizing your Principal Residence Exemption.