Your Mortgage Prepayment Penalty can be Tax Deductible

There’s one piece of good news about mortgage prepayment penalties: The cost of the penalty can be used as a tax deduction if you’re breaking your mortgage to move 40 km or more to be closer to work.

The Canada Revenue Agency has a provision that allows you to deduct the costs of moving if you’re doing so for a job or for full-time study at a university, college or other type of course at a post-secondary level.

You can claim other costs associated with selling your old residence as well: advertising, notary or legal fees, real estate commission as well as that dratted mortgage penalty “when the mortgage is paid off before maturity.”

Keep the receipts and fill out form T1-M Moving Expenses Deduction. For tax purposes, the mortgage penalties get lumped under “other selling costs, specify” on Line 16 of the T1-M form.

Read More