*This post was created in collaboration with Mortgage Maestro.
Your parents took care of you when you were little, and eventually, you may want to return the favour. While many seniors are capable of taking care of themselves, many others find themselves with physical or mental ailments that impair their functionality and hinder their independence.
Rather than put your folks in a home to be taken care of, you may consider taking them into your home and caring for them yourself. But as noble as that may be, you’ll need to consider the accessibility of your home as well as the tax implications of your parents living with you and paying rent.
How To Make Your Home More Accessible
There are several changes you can make to your home to make it more accessible for your aging parents. You’ll want to think about modifying your home in some ways to make it more accessible to accommodate elderly parents living with you, including the following:
- Replace stairs with ramps
- Install handrails
- Remove barriers to showers
- Install grab bars in shower stalls and around the toilet
- Add a bench inside the shower stall
- Install pull-out cabinet organizers
- Widen doorways and hallways
- Swap round door knobs for handles
- Install voice activation technology
- Position switches, appliances, counters, and closet rods at lower-than-standard height
- Add space under the kitchen and bathroom sink to accommodate a wheelchair
- Buy furniture that can accommodate wheelchairs
These are just some of the many modifications you can make to your home. The exact changes you make should be tailored to your parent’s needs.
How Can You Finance These Renovations?
Depending on the changes you need to make to your home, it can cost tens of thousands of dollars to do. Fortunately, you don’t have to come up with all that money upfront. There are some financial options available that can help:
Tap Into Your Home Equity
Home equity refers to the current market value of your home minus the amount you still owe on your mortgage. For instance, if your home is worth $700,000 and you have an outstanding loan balance of $300,000, that leaves you with $400,000 in home equity.
You can borrow up to 80% of your home equity. Generally speaking, you need at least 20% equity in your home to qualify for a home equity loan in Canada.
Interest rates on home equity loans are usually lower compared to other types of loans because your home serves as collateral. To qualify for the lowest rates, you’ll need good credit. However, you can still get approved even without great credit, especially when you apply with alternative lenders.
Brokers like Mortgage Maestro can help connect you to lenders who work with borrowers with your specific credit and financial profile. They have a large network of lenders and do not work for individual financial institutions. Instead, they have your best interests in mind, which means you’ll get the best deal available.
Take Out A Personal Loan
If you don’t own a home or do not want to risk using your property as collateral, consider applying for a personal loan. With this type of loan, you’ll get a lump sum of money that you can use to pay for home renovations up front. Then, you’ll have a long period to repay what you borrow via smaller installments.
Keep in mind, however, that a personal loan is typically more expensive than a home equity loan, especially if you’re taking out an unsecured loan. That’s because an unsecured personal loan does not have an asset of value to secure the loan. As such, the risk increases for the lender, who will charge a higher interest rate as a result.
Look Into Other Financial Resources
There are other financial programs that you may qualify for to help cover the cost of modifying your home for your elderly parents, including the following:
Home Accessibility Tax Credit (HATC). The HATC is a non-refundable tax credit that homeowners can claim to cover the cost of eligible home renovations to improve accessibility. The HATC expense limit is $20,000, which would allow a tax credit of up to $3,000.
Multigenerational Home Renovation Tax Credit (MHRTC). The MHRTC is a refundable credit to help cover the cost of renovating a qualifying home to build a secondary unit that accommodates a senior or a person with a disability. The MHRTC provides a credit value of $50,000 or 15% of qualifying expenditures, whichever of the two is lower.
Do Your Parents Pay Rent? Is It Considered Rental Income?
If you need some help keeping up with the mortgage payments, you may consider asking your parents to pitch in and charge them rent. But is the rent you’re collecting classified as rental income? If so, what does that mean for taxation? Moreover, can you get a mortgage with rental income?
What Happens If You Rent Under Market Value?
If the rent your parents pay you every month is considered an income, you can deduct expenses related to the rental arrangement. But if the rent you charge is below fair market value and is just enough to cover the additional expenses related to elderly parents living with you, such as groceries and more expensive utility bills, this is not considered income.
In this case, you should not report the rent as income and cannot deduct any expenses when you file your taxes. You also cannot claim a loss if the amount you charge in rent is not enough to cover the additional expenses. Only when you charge the same rent price that you would charge other tenants and earn a profit can you claim a rental loss.
What Can You Claim As Rental Expenses?
If you qualify to make deductions on your home when filing your income taxes, you can claim the following as expenses:
- Property insurance
- Mortgage interest
- Repairs
- Maintenance
- Property taxes
- Utilities
When Must You Declare Rental Income As Income?
If you earn a profit from the rent you charge your parents after all expenses have been paid, this is considered an income. In this case, the income generated from renting your home must be claimed when you file your income taxes. If you’re taking a loss, you would not report the rent as income.
Can You Get A Mortgage With Rental Income?
Earning a profit by charging rent will increase your overall income, which can help to improve your chances of getting approved for another mortgage with rental income. The Canadian Mortgage and Housing Corporation (CMHC) allows homeowners who rent out their homes to use all of their rental income towards mortgage qualification.
However, there are specific requirements that you must meet to qualify for a mortgage with rental income, including the following:
- You must live in the home that you’re renting out
- Your home can only have two living units
- The rental unit must be occupied for a minimum of two years
- The rental unit must meet all zoning requirements and bylaws
- The rental unit must have a separate entrance
- The rental unit must be self-contained
Final Thoughts
If you have elderly parents living with you to make it easier for you to care for them, you may need to make some adjustments to your home to make it more accessible. There are several financial options available to help cover the cost of making such changes. Further, if you charge your parents rent, you’ll need to understand the tax implications and what you may qualify for in terms of deductions.
