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Don't Overimprove Your Greatest Tax-free Investment

Written by Posted On Tuesday, 13 July 1999 00:00

Do you buy stocks, mutual funds or even Canada Savings Bonds without first investigating the potential for profit? Most people consider possible returns when putting money into investments that may generate taxable profit. However, why do so many Canadian homeowners invest money in our greatest tax-free opportunity -- our home -- without checking on returns beforehand?

Canadians receive an income tax exemption on the profit, or capital gain, they make when they sell their home (which Revenue Canada refers to as the principal residence). This tax break is often ignored by homeowners when they spend money maintaining and renovating their house, semi, townhouse, condominium...

Before you dive into home renovations, rebuild a garage or overhaul your garden this summer, stop for a minute and think income tax.

Too many homeowners spend time and money indulging personal whims, experimenting with do-it-yourself remedies or lavishing pricy improvements on their home without checking with local real estate professionals to find out whether the planned home improvements will add or subtract home value. Often these same homeowners are upset with Realtors who later show them real estate sales data that prove they will probably not get out all the money they put into their home.

Since the profit you make on your home is income tax free, it is worth a few precautions to be sure you'll benefit financially from the time and money you invest in your home. This means learning the difference between cost and value when it comes to your home. That is, the money that you spend on your home does not automatically translate into an equivalent increase in value to a buyer. Your local Realtor will usually not charge you to do the research involved in determining what buyers value in your neigbourhood. Here's a few tips to get you started:

  • Keep track of the maximum sale price range for your street and immediate neighborhood.
    These figures are the spending limit buyers put on your area. If they want to spend more, buyers go elsewhere. Local Realtors can search their Multiple Listing Service database for these details.

  • Don't accept verbal "oh, yeah, it will be fine" value assurances from anyone.
    Ask to have a look at (and a copy of) the data behind the Realtor's or anyone's opinions. Many Realtors regularly offer free market evaluations.

  • If you bought during a price peak, concentrate on cost-effective details that increase the saleability of your home in any market.
    Since a loss on your home cannot be used as a tax deduction, do what you can to get your money out. Use maintenance and modernizing strategies that would result in a Realtor confidently writing this ad for your home: "Immaculate, well-maintained, ingenious use of space, classic detailing, move-in condition."

    Just remember to get all your tax information and advice from your accountant or Revenue Canada.

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    PJ Wade

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