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Date: Friday September 26, 2003
Time: 09:57 AM -0700
QUESTION:
Dear David:
Please help us on this:
We have a rental property bought several years ago currently made some income. And now we have bought a residential house and we want to take some money out of the rental house and put onto the residential house because we
want to reduce some mortgage on the residential and lower the income tax on the rental.
Is that possible to lower the income tax by taking equalty out? Or what is
the better way to work out in our situation?
Thank you very much for your help,
JXXXX
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david ingram replies:
Interest is only deductible when the borrowed money is used to buy an income earning investment.
In your case, if you use the rental property to boorow money to buy your residence, the interest will NOT be deductible.
Two tax cases in 1986 speak to this - one is the Manfred Holman case and the other is the Eva Huber case.
It is possible to use the rental house to help make all your mortgages deductible.
One method would be for your wife to sell you her half of the rental. You would borrow the money to buy it and she would use the money you paid her to pay down the mortgage on the personal house.
Another method would be to take all the payments you receive for rent and use the rent money to pay down the non-deductibel mortgage. Then using the house you live in and the rental as security, you borrow money to make the payments, make repairs, pay the taxes and any other deductible expense for the rental. It takes longer but ove r time the non-deductible mortgage is paid off and replaced by a deductible loan.
You can find out more about making your mortgage tax deductible by going to www.centa.com - click on newsletters - click on 2001 - click on, print out and read all 12 pages of November 2001.
Note that Mortgage Broker Joan Marsh at 535-9981 is one of the best people to talk to about arranging the paperwork to make your mortgage deductible.
Hope this helps
David Ingram of the CEN-TA REALTY Group
US / Canada / Mexico tax and working Visa Specialists
US / Canada Real Estate Specialists
108-100 Park Royal South
West Vancouver, BC, CANADA, V7T 1A2
(604) 980-0321 - Fax 913-9123 [email protected]
www.centa.com www.david-ingram.com
Disclaimer: This question has been answered without detailed information or consultation and is to be regarded only as general comment. Nothing in this message is or should be construed as advice in any particular circumstances. No contract exists between the reader and the author and any and all non-contractual duties are expressly denied. All readers should obtain formal advice from a competent and appropriately qualified legal practitioner or tax specialist in connection with personal or business affairs such as at www.centa.com. If you forward this message, this disclaimer must be included."
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