TAX ADVANTAGE

by Darrin DeRoches August 20- 26, 2009

There has never been a better time to buy your first home, according to all the financial experts. There are a trio of federal incentives available to the first time buyer. The First Time Home Buyers Tax Credit, which provides a 15 per cent tax credit to a maximum of $5,000, increased the borrowing maximum to $25,000 from RRSPs. Then there is the federal Home Renovation Tax Credit where you can deduct 15 per cent off personal income taxes for improvements up to $10,000. The third incentive is that CHMC insured mortgages allow five per cent as your down payment. The CHMC also allows blood relatives or parents to gift all of the five per cent as long as they sign a “gift letter” stating the first time home buyers are not required to pay it back. Not bad incentives; just remember you have to pay back into your RRSP fund within 15 years, starting the second year following the year you take the money out of the fund. Couples buying a home together can both max out the 25 grand withdraw. One must budget for this re-payment plus all the other carrying costs associated with owning a home. The financial wizards figure the savings you get off the taxes and the increase in the property value, you will make more money using the RRSP as a down payment then the RRSP would pay out in interest. Plus if you can use your RRSP to get over the CHMC insurance payout, you will save a ton! This insurance can get as high as 7.4 per cent of the total deal. Sure it’s rolled into the mortgage, but if you use your RRSP to get past the CHMC insurance you can save a great deal. The Home Renovation Tax Credit is good up until January 2010 and you can paint, carpet, build a deck, or do anything that contributes to the value of your home. You may not be able to buy a new flat screen under the tax credit, but if you build the surround sound into the ceiling and walls, maybe you can save the tax! The last incentive of allowing your parents or blood relatives to “gift” you the five per cent down on your home may help them in their taxes. Part of, or even the entire gift, may be written off in their taxes and that may be enough of an incentive to get you out of their house and into your own. These incentives may spur the first time buyer into buying, but remember there are closing costs that will add about 1.5 to two per cent to the deal. Talk to an accountant to figure out all the details, but properly played you can save a lot of money when buying your first home! V [DARRIN DEROCHES] Darrin DeRoches is a local real estate and mortgage broker. He can be reached to answer questions, comments or stories about real estate experiences through this weekly column at mail@uniquerealty.ca.