# Rental unit and CMHC mortgage insurance: deductible?



## balexis

Hi! I bought a two-unit rental property in 2008. I took a 95% mortgage so had to pay a hefty mortgage insurance from CMHC.

I am trying to see if this premium is deductable in some way. Here is the only relevant piece of information I got from CRA:



> You can deduct certain fees you have when you get a mortgage or loan to buy or improve your rental property. If the loans relate to the construction or renovation period, first read about “soft costs”.
> 
> Loan fees include:
> 
> * mortgage applications, appraisals, processing, and *insurance fees*;
> * mortgage guarantee fees;
> * mortgage brokerage and finder's fees; and
> * legal fees related to mortgage financing.
> 
> You deduct these fees over a period of five years. Deduct 20% in the current tax year and 20% in each of the following four years.


(Emphasis mine)

Does anyone read this the same was as I do? Because this means a lot of money and I am not sure lots of people know about this one.

If so, I'll get ready and re-state my last two tax reports to include 20% of the CHMC premium each year!


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## Taxsaver

Does that insurance disappear when your mortgage reaches down 80% of the original house price?


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## Mockingbird

> You deduct these fees over a period of five years. Deduct 20% in the current tax year and 20% in each of the following four years.


The statement is correct.

Also, here's an answer from David Ingram, a tax expert from Vancouver.
http://www.askanexpert.ca/answer.asp?id=7013


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## balexis

Taxsaver: the entire insurance amount is initially added to my mortgage principal.

Thanks Mockingbird for the reference. I also found an article (in french) that was saying the same thing but you know what they say, don't believe everything you read on the Internet! 

http://finances.ca.msn.com/chroniques/chroniques-article.aspx?cp-documentid=23475906

Thanks again, back to re-stating 2008 and 2009


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## GeniusBoy27

*RE: Could you claim this if you went from personal to rental property?*

I'm curious ... do you think this is possible if you went from living in a property to renting it?


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## Jungle

^^At the worst, you would have to pay it back. If you were wrong, it's not like you were intentionally defrauding, it's a legit claim, but it just wouldn't qualify. The CRA didn't really give lot of detail in this one for all the "what ifs".


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## balexis

Good question. In my case it is a variation of your scenario: my rental unit was 100% for rental purposes on year 1, but on year 2, I moved in one of the units. So should I deduct Insurance Amout X 20% X (% of the unit that is rented), or the entire 20%?

I went for the 20% following the logic that the entire insurance amount was paid during year 1, while the building was 100% rental. I guess they just don't allow the 100% deduction on year 1 since it's a pretty big amount that would most certainly cause a net loss for the unit.

Not 100% sure though.


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## Dana

The CMHC Premium that is added to your mortgage is capitalized. it becomes part of the cost of purchasing the property, so you include it when calculating your gain/loss. 

CMHC fees and other fees that are not included in your mortgage (appraisal, home inspection, legals, etc.) are deducted from the rental income. 

I am reading the above comments, and the other posters seem to write the fees off over 5 years. We have never done that - the premium has always become part of the cost of the property.


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## balexis

Hi Dana, can you provide some reference that contradicts what was stated in the previous comments?

Thanks!


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## Dana

balexis said:


> Hi Dana, can you provide some reference that contradicts what was stated in the previous comments?
> 
> Thanks!


The only reference I have are the CAs we have used over the years. We have used 2 and this is how they have both done it. We haven't purchase a property since the beginning of 2009, so maybe this is new? 

Unfortunately, when it comes to the tax side of the rental business (cca, deductions vs. capital costs, etc.) I have to admit that I am not as informed as I should be.


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## GeniusBoy27

I asked my accountants this question, who asked for clarification from CRA, and they believe if you went from owning to renting a property, that the CMHC insurance fee is indeed claimable for the years that you are renting the property (i.e. the investment portions).

Thus, for year 2-5, I can claim 20% of the CMHC insurance fees every year.


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## Aslan K

One of the easiest ways to reduce you mortgage insurance is to cancel it, and replace it with term insurance. 

I am a Financial Security Advisor at Freedom 55 Financial, and this is a very common strategy I offer my clients. Usually my clients end up saving almost half. In addition, term insurance is much more flexible than mortgage and there are many other benefits to it. 

Your mortgage insurance premiums don't decrease, but you outstanding balance does. In other words, you pay the same premium when you mortgage is $350,000 and $50,000.

*Remember: Banks are not into insurance business.*


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## Jungle

Umm they are talking about CMHC insurance, not life insurance. ^^ spam


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