Dreaming of a second home near the slopes or on a lake? Whatever your idea of a little piece of paradise, far from the city and your professional obligations, you have to do your homework so that once you’re enjoying the warmth of your fireplace or swimming in your lake, the reality is as wonderful as you had imagined.
Finding your cozy nest
Over the years, you have developed an affinity for a particular region of our beautiful province, like the Laurentians, the Eastern Townships, Lanaudière or Charlevoix. You may have even rented a cottage there and, if you haven’t, that would undoubtedly be the best way to ensure that you’re making the right choice in buying a property in that area. If you’re sure that’s the place for you, you can then decide on the characteristics of the cottage you want and start looking for your country abode.
Financing considerations
Over the course of your career, you may have saved enough to pay part or all of the cost of your second home. If you need a mortgage loan, know that more restrictions apply for the purchase of a second residence. Moreover, you cannot deduct the mortgage interest from your taxable income if your new home is for personal use only.
To rent or not to rent your cottage
You may prefer to make only personal or family use of your cottage, and that’s well and good. But by renting it during certain periods of the year, you can cover part of your mortgage payments, maintenance costs, municipal taxes and other annual expenses. Bear in mind that rental income from your second home is taxable, though you can deduct maintenance, electricity and other costs incurred during the time the cottage is rented.
Tax matters
If you take good care of your cottage, its value will probably appreciate with time. That’s good news but know that the difference between the amount you paid for the property, including major improvements, and the selling price constitutes a capital gain, so any profit you make will be taxable. However, you could avoid paying this tax by designating your country house as your principal residence. An in-depth analysis by a professional can help you decide on the viability of this option.
Plan your estate
Depending on whether you decide to sell your second home or gift it to your children, the tax that you or they will have to pay can vary considerably. You could decide to bequeath the property by will, or assign an option to buy the property to one or more members of your family, unless you prefer to give it to one of them as their inheritance.
Don’t forget insurance
Know that it is generally more costly to insure a cottage than a principal residence. The risk of theft is greater, especially if no one is living in your second home for long periods, or if it is hard to get to. Note as well that if you rent your cottage from time to time, you will have to mention this to your insurer.
Get expert advice
For more information on financial, tax and estate strategies related to the purchase of a second home, contact your Advisor at the Financial. Backed by our tax specialists and notaries, your Advisor can be a key partner in making the cottage of your dreams a reality.
