Can you claim mortgage cancellation penalty as an expense when selling a rental property?

[andrew15]

When selling a rental property you can claim expenses like legal fees, realty fees, etc.

If you had a mortgage and incurred a penalty on the sale because the mortgage was paid early, can you include this expense in the same way?  Note that this is might not the same as claiming the interest portion of the mortgage while renters are in the property - I understand where that fits in the annual expenses of the property.

[TurboTax-Christine · Accepted solution]

Hello

The cost to cancel the mortgage would be part of the 'outlays and expenses' when selling a rental property reported on the Schedule 3 - Capital Gains & Losses.  

Example

Proceeds of Disposition = Selling Price

Less the Adjusted Cost Base = original purchase price or any unclaimed CCA on the building and additions to the property (not previously deducted) + original land value

Less Outlays & Expenses to sell the property (Ie Real Estate Fees, Bank Fees, Legal Fees, Amounts paid to bring the property to a good state for sale (if not claimed anywhere else).

Hope this is helpful.

Christine

[andrew15]

Thank you for a concise, clear answer.  It answers my question perfectly.

[maggie-guo]

Can I claim the mortgage penalty as expense if I sold my rental property for a capital gain? thanks,

[naomileg]

What about the fees paid to the government to discharge a mortgage such as the Payout/Assignment fee and the Registry Office charge?  Could they be included as well?

[TurboTaxHeba]

Yes, you can include those fees as well as outlays and expenses. 

[laila]

Are mortgage discharge fees deductible in the case where the property was not a rental property. (Daughter lived in unit at family rates not market rates.)

[TurboTaxSusan]

@laila Yes, you can include mortgage discharge fees as "outlays and expenses". 

[laila]

@TurboTaxSusan Thank you Susan. Can you claim both the cancellation fee and interest penalty? I asked CRA and was told it was not because no specifically referenced in  Guide T4037 Capital Gains 

Outlays and expenses

These are amounts that you incurred to sell a capital property. You can deduct outlays and expenses from your proceeds of disposition when calculating your capital gain or loss. You cannot reduce your other income by claiming a deduction for these outlays and expenses. These types of expenses include fixing-up expenses, finders' fees, commissions, brokers' fees, surveyors' fees, legal fees, transfer taxes, and advertising costs."

I did not have great confidence in this answer as it took the agent some time to look up and was not able to answer immediately.

Can you clarify. I want to do this properly but do want to reduce taxes owing if allowed. Note this property was never deemed a rental property as rented to daughter at family rates well below FMV rental rates.

Thank you. Pura Vida

Laila

[TurboTaxGinette]

We rely on the Canada Revenue Agency for income tax clarification. If needed please call to speak to another agent @ 1-800-959-8281.

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