Home Renos
Posted by Gail | Filed under Home Buying, Taxes
When the Feds introduced the Home Renovation Tax Credit, a lot of people started rubbing their palms together planning how they were going to take advantage of the credit to do some renos around the house. Since “consumption” is a huge part of our economy, the government is hoping that people will use the tax credit as their incentive to spend money. And, of course, that’s exactly what people will do.
If you’d don’t already know, homeowners may claim eligible home renovation expenses performed after January 27, 2009 and before February 1, 2010, up to a maximum of $1,350. The credit must be claimed on your 2009 income tax return and you must spend between $1,000 and $10,000 to receive the credit. If you spend the maximum of $10,000 you’ll get a credit of $1,350.
What qualifies? Anything from renovating your kitchen, to laying new carpet or flooring, building a deck, fence, or addition, installing a new furnace, or painting inside or out. Building permits, professional services, and equipment rentals are also covered.
What’s not covered? Routine repairs and maintenance don’t qualify, nor does new furniture, appliances, electronics, or construction equipment.
Spring is the perfect time to start fixing up the little homestead. But before you lay down your bucks, make sure you know that it’ll be money well spent. If you’re doing stuff just for the tax credit, you’re a dope. If you’re putting the renos on credit, no doubt the interest will offset the tax benefit PDQ. But if you’re doing stuff that improves the value of your home, you can pay cash on the barrel, and the government is willing to help, you’re ahead of the game.
Want to renovate your kitchen or bathroom? Go ahead. According to the Appraisal Institute of Canada you’ll get between 75 and 100% back on your investment. Painting the house returns between a 50% and 100%. Replacing your roof or your heating system, installing a fireplace or new flooring, building a garage, adding a rec room, replacing windows or building a deck all have a 50-75% payback.
While the tax credit covers sod, landscaping is one of the lowest payback steps you can take. Ditto installing asphalt or interlocking paving, putting in a swimming pool or adding a skylight.
Of course if you’re making a change simple for the sake of change, you may get nothing back. So don’t think that replacing perfectly good carpet with another version of floor you are “improving” the value of your home. On the other hand, if you put on a new roof to replace a roof that was shot, you will get most of your money back. The trick is to balance your desires with the return you’ll get on your investment. Pour 10-15% of the value of your home into a kitchen reno and you’ll be in the positive. Spend more and you should be willing to commit to living in the house for more than five years to make the reno pay.
The Appraisal Institute of Canada has an interactive web-based guide designed to help you figure out the value of home improvements you may be considering. CMHC also has an extensive list of resources you should check out if you’re planning to do some upgrades this year.
If you’ve been bitten by the reno bug, be careful not to spend too much. If the next best house in your neighbourhood is worth just $400,000 and you bring yours up to $750,000, you won’t be able to get the money out.
So, what are you planning to spend money on in your home this year? And how do you feel about the tax credit the Feds have put on the table? Would you do something now because of the credit? And are you planning to do any renovating even if you’re still carrying consumer debt?
March 30, 2009 at 8:35 am
We’ve kicked around the idea (frequently) of redoing the kitchen in our house. It’s a huge kitchen but very outdated, and our realtor cringes almost everytime he sees it. And considering it’s a 3 bed, only 1 bath house, it needs helps to compete with others in the neighbourhood when we sell it.
That being said, we need to sell it soon, and I just don’t think the investment will be worth it right now. It would be one thing if we were to get some use out of it, but do go through all that renovation (NOT being able to pay 100% upfront, more like 50%) and then sell it right away seems like a lot of hassle and frustration for little return.
We will spend about $100-200 (cash of course) and a LOT of sweat labour, and repair and repaint the front deck and back fence. It’s starting to look like a graveyard back there…
March 30, 2009 at 8:55 am
It seems like this is tax break is like a sale/coupon – if you were going to do it anyway and you can afford it, you’ll save some money. But if it encourages you to spend where you wouldn’t have before, you didn’t save $1,350, you spent $8,650!
And in the current market, where buyers are very price and debt conscious, I wonder whether one wouldn’t be better off selling one’s house at a discount rather than spending the money renovating. I don’t know for sure though.
March 30, 2009 at 9:08 am
Does purchasing upgrades in a condominium that I haven’t moved into yet apply to the tax credit?
March 30, 2009 at 9:46 am
Man I’m always a day late and a dollar short LOL. We did renos last year. Gutted a scary sad old bathroom and redid it from the studs out, and redid the livingroom too. I cannot afford to do more this year. Ah well, I probably would have spent money I can’t afford and made my Credit Card cry.
March 30, 2009 at 10:00 am
We are hoping to replace our dusty rose carpet this year with hardwood flooring. That was our plan last year but the money got spent on a vet bill instead. We also may be redoing the roof as we lost some shingles during a big wind storm this winter.
We may also take advantage of this tax credit to do some work at the cottage. I think a new septic tank might be needed so we will have to see if that is an eligible expense.
March 30, 2009 at 10:13 am
Hi, we’re re-doing our roof _tomorrow_ or wednesday (depends on rain).
I’m not sure I understand.
So, if let’s say the roof costs 2800$, I get 15% out of 2800-1000 = 1800, which is 270 tax credit.
Which means from my next year’s income, I deduct 270$… so I get back in taxes, say, 170$, if I’m lucky…
How does this equal a 50% and 100% on my investment?
I’m very confused, I’m 100% sure I’m missing something.
is this correct?
March 30, 2009 at 10:14 am
The tax credit was good timing for us as we were planning on doing our roof this year anyways (money already saved up for it) and renovate a bathroom (again money already in place) so it was really a bonus for us…
Although, last year we refaced our kitchen but we haven’t yet replaced the doors.. so if its in the budget we might do that before Feb 2010 but only if we can do it without credit.. I really think that the coming years it will be crucial to be out of debt and not a slave to the credit card companies..
@Christy Two years ago we removed all the dusty rose carpet from our home putting in laminate wood floors throughout the house.. it was the absolute best thing we ever did!! We couldn’t believe how much better we felt and slept after the carpet was gone. We have two dogs and trying to keep the carpet clean was so difficult. Have a good Monday everyone!
March 30, 2009 at 10:36 am
@ioana: She means you get 50%-100% of it back if you sell, by way of a higher selling price.
March 30, 2009 at 10:44 am
If you can, try and double up the tax credit with credits you can get back for renos that make your home more energy efficient. This means you have to have the energy audit done BEFORE you reno. I think how it works is if you are considering stuff like a new roof, better insulation, more efficient heating etc. you get an energy audit done. It costs $300 and you get $150 back from the govt. You do your reno, you redo the energy audit (you have to pay again) and if your home is more efficient, you can claim money back from the govt. I looked into this, but not deeply.
March 30, 2009 at 10:55 am
Those of you with older homes (ours is over 100 yrs) know there is always something to do. Ever see the movie ‘The Money Pit’? LOL.
We’d love to replace our seafoam green carpet in living room, downstairs sitting room, both staircases, upstairs sitting room, hall and the dusty rose in our guest room (aka daughters old room)…..by the sounds of the dusty rose and seafoam green, we’re all talking around 1986. Oak hardwood to match our one staircase would be awesome….but, way too much $$.
We have to replace our small outdoor porch steps this year and one post is shot – but, because of the date (and gingerbread) of the home I want to replace it so it matches the rest.
Now, I have been paying attention here. I am a Gail wannabe. So, the money I have been throwing in to my TFSA (read Emergency Fund) will no doubt cover the expense. Sigh…only problem is I have to start the TFSA all over again…but, isn’t that better than using my LOC? You betcha!
March 30, 2009 at 10:57 am
The Feds have a quick calculator here: http://www.fin.gc.ca/act/hrtc-cird/hrtc-cird-eng.asp where you can plug in what you’re spending and it’ll show what it’ll be worth to you.
March 30, 2009 at 11:00 am
It’s worth it to know that the Home Renovation Tax Credit also works if you live in a condo. If your strata council approves work on the common areas of the building and your strata lot is levied for money to accomplish this work, you can receive a Home Renovation Tax Credit for your portion of that work to the common areas.
March 30, 2009 at 11:20 am
Fortunately or unfortunately depending on how you look at it we need to replace our furnace and our fireplace anyway – both of which are eligible expenses for the credit.
We are also doing the eco-energy audit so we will get a rebate back for these particular renovations as well.
We don’t have all the money for the new furnace etc. but we are doing INTEREST FREE financing for 36 months through Sears. We have done a number of purchases this way and find it works well for us.
We do have the cash to pay for the audit though (about $350) and we will be getting back approximately $2000 in rebates half of which will go into our emergency fund since we have already built the financing into our monthly budget. The other half will most likely be put towards planned spending.
Ioana – I believe the percentage back calculations are in terms of reselling your home and have nothing to do with the tax credit.
March 30, 2009 at 11:38 am
Sod? Really!? I wonder if fencing is in there. Our fence and lawn are in a really bad way (it must be bringing out property value down) but we keep putting it off because we are of frugal minds!
March 30, 2009 at 12:03 pm
I must admit we’ve been kicking around the idea. The house is 27 years old and much could be done (heating, water, a/c, insulation). Was thinking of starting with the bank as it relates to our mortgage. We’re only 7 years away from paying it off and there is a lot of equity in it. As well, if you listen to ads from many of the Home Reno stores and independents, they are offering their own incentives too. The other reason this is worth at least looking into now if you live here in Ontario is that with the new harmonized tax due to come in next summer, a lot of these reno things could be much more expensive. A lot of homework needs to be done but could be worth it.
March 30, 2009 at 12:24 pm
I can relate to Jolie. Last year, I spent 10,000 on redoing my kitchen and diningroom so I can’t claim any of that. The year before they started offering rebates for new furnaces, I replaced my furnace.
This year, I am replacing an upstairs sliding door that leaks heat like crazy with a wall and window. I’m reading that I can get an energy audit, get 1/2 the cost of the audit back from the government and then claim to get some of the money back for the cost. Are you allowed to in essence, claim twice? I would be claiming the money for that renovation in the tax credit and then claiming some of the cost of the same renovation for increased energy efficiency. Is that allowed?
March 30, 2009 at 12:53 pm
@Nadine – yes, you can ‘double dip’. The trick of it is you do have to actually increase the energy efficiency, so make sure your contractor does the job in a way that will accomplish this.
March 30, 2009 at 1:00 pm
Nadine – the rebates you get back for the eco-energy audit are entirely separate from the home reno tax credit.
For the eco-energy audit they (a certified inspector) comes in and checks out your house for areas you could improve i.e. new furnace, windows, insulation etc. They prepare a report and once you get that back you can begin your upgrades.
You have 18 months to do some or all of the suggested improvements. So you can take as long as 18 months or make them right away. You don’t have to do all of the improvements suggested but obviously you’ll only get rebates back for what you did do.
Once you are done your improvements the inspector will come back and check and then you can apply for your rebates which take 3 to 6 months to come in.
You do need to make sure the cost of the audit is going to be worth it. i.e. if you were going to get one window replaced in the 18 month period following the audit it most likely would not be worth it but if you are going to do a few windows or even just a furnace it probably is.
For more info go here http://www.mei.gov.on.ca
March 30, 2009 at 1:22 pm
Thanks a lot ddk and edgarella. One more question. If I have 18 months after the audit to do things, can I do this now and then maybe something else later and then have the inspector come back once for both things?
March 30, 2009 at 1:30 pm
I’m going to make my husband read this post! He heard about the credit and wants to do the bathroom this year which will cost about $10, 000. Like Jolie, we have to tear it down to the studs, and I thought I’d save for it for the next few years, but now there’s a tax credit, he wants to put it on the LOC. I guess his attitude is what the government is hoping for, but my debt-averse brain can’t handle it!
March 30, 2009 at 2:18 pm
Nadine – I have that question myself! we’re having our audit done on Friday so hopefully I’ll get an answer then. I’ll post it on here either way.
March 30, 2009 at 2:24 pm
Catherine – the Money Pit was hilarious!
March 30, 2009 at 2:33 pm
There is only a ROI on specific renos/improvements when you sell the property, otherwise there is no realized fiscal ROI. Renovating your kitchen or painting your house when you plan on being there another 10-15 years has no net return. If your kitchen is fine, best to put off the renovation until you plan on selling, or really need to do it.
March 30, 2009 at 5:07 pm
Our main bathroom needs an overhaul. We have most of the money saved and hope to be able to do it before summer. Hopefully there are no moldy surprised behind the walls!
March 30, 2009 at 6:37 pm
We need to paint the exterior of our house and badly need a new kitchen floor.. that’s the only plans for the house at the moment.. lots of things I would like to do.. but aren’t nessecary and I want cash in hand for it first.. so they will have to wait
March 30, 2009 at 8:27 pm
The credits are great if you are planning or had an emergency situation to replace something.
To Catherine, there are less expensive more eco-friendly flooring options. Have you priced bamboo flooring? You probably could get it to look like oak without the cost. Just a though.
March 31, 2009 at 2:32 pm
@Kandfamily~ only mold bothers you? Try a huge cow leg bone….when we had our playroom turned laundry room…then turned into the main bathroom done in 2001 the workers found the bone in the east wall…huh???
@Cynthia ~ thanks for your suggestion! As tempted as we are to follow through with the flooring, we may decide to put the house up for sale in the next year or so and we don’t think we’d get our money back out of it. We live in a podunk. This house in Toronto would be awesome (read we’d get a lot more money for it there)
April 2, 2009 at 12:05 am
Just in the throws of all the provincial and federal grants,applications, and yes dont forget those permits! LOL Bought a sugar shack that has great potential and hoping to make it my forever home. There is just me and 700 sq feet. Lots of nature and the need to provide a all on one level place to retire for when my body retires. In nursing that happens early. So there are many things to consider. Do one step at a time, purposefully and shop shop shop. but dont comprimise on a goooooood contractor with lots of references! Jenny
April 3, 2009 at 3:39 pm
@Nadine
We had our eco-energy audit today by Amerispec. The good news is that the Federal Government just changed the rules a bit (as of April 1st) one of these changes is that you can have the inspector come back more than once!
You still only have 18 months to complete any changes you want but this allows you to install a new furnace, get the inspector to come back and apply for your rebates which take about 3 months to come in. Then, once you get those rebates you can use that money to add insulation or get some new windows (just examples of course) and then get the inspector to come back once again and apply for those applicable rebates.
The inspector will charge for subsequent visits (this amount will depend on the company you use – but probably about $150).
The other new incentive is that the Federal Government just increased their rebates by 25%. The provincial match will depend on your province. Ontario was matching the Feds but have not immediately announced that they will match the 25% increase but they still match the old amount.
I hope this helps. It was a very eye opening experience for us – the blower test (which tests for air leaks) was astonishing.
April 8, 2009 at 7:14 am
Thanks a lot danadk. It’s a little frustrating that the inspector has to charge so much every time he/she comes out. I’m wondering if I can get them to come out once, do a variety of changes over 18 months and then get them to come out just once near the end of 18 months and check them all. If I time it just right, I should be able to use this year’s tax refund for renos and next years as well and then just pay once to have the inspector come back. Happy renos.