My question is: Canadian-specific
QUESTION: Hi David,
I own two homes. I have one rental property worth 500,000 with a mortgage
of 250,000.
I want to sell my principle residence to buy a new one. I want to do an
equity take out on the rental to enhance the down payment on my new home.
Is the increased mortgage on the rental tax deductable?
thx
XXXXX
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david ingram replies:
The answer is absolutely NO!!!
Only interest on money used/borrowed for investment purposes is deductible.
Therefore, when the money from a mortgage on your principal residence was
used to buy income mutual funds or a rental house, the interest is
deductible against rent from the rental or income from the mutual funds or
other investment.
But a mortgage (registered against / on a rental house) where the money
borrowed was used to buy you a pleasure boat or the house you live in or a
motorhome or other personal use item is NOT deductible.
The best case to see this is the 1979 Manfred Holman Case.
On the other hand, you can use rent from the rental house to pay down the
non-deductible mortgage on your new principal residence. After paying down
the mortgage by $500 or a $1,000 or whatever, use the new equity in your
house to fund a Line of Credit loan to pay the expenses on the rental house.
The expenses would include repairs, property taxes mortgage payments
(including principal). The expenses paid with borrowed money (but not the
principal) are deductible on your T776 rental statement.
If you want a verbal response, this would be a good question to ask on air.
Answers to this and other similar questions can be obtained free on Air
every Sunday morning.
Every Sunday at 9:00 AM on 600AM in Vancouver, I, david ingram am a regular
guest on Fred Snyder of Dundee Wealth Managers' LIVE talk show called "ITS
YOUR MONEY"
Those outside of the Lower Mainland will be able to listen on the internet
at
www.600AM.com <http://www.600am.com/>
Call (604) 280-0600 to have your question answered. BC listeners can also
call 1-866-778-0600.
Callers to the show and questioners on this board can also attend the
Thursday Night seminars on finance and making your Canadian Mortgage
Interest deductible.
And for those in the Vancouver area, Fred is running an infomercial for 1/2
hour every night in October on Channel 10 television at "groooaaannnn" 1 AM
in the morning. It has a couple of useful concepts in it that can be
recorded to really get the idea.
Every Thursday Evening, Fred Snyder of Dundee Wealth Management conducts one
of 17 different financial seminars in the boardroom of his office
Time: 7:00 to 9:30 PM
Date: Every Thursday evening
Place 1764 West Seventh
Vancouver (corner of Burrard)
Phone (604) 731-8900 to register
No cost - no obligation
Topics always cover mortgage interest as a deduction
other topics - getting the mortgage, estate planning, critical care
insurance, income taxation, differences between stocks and bonds, and
usually the most innovative HELOC mortgage offered in Canada from Manulife
Bank
If you are starting in downtown Vancouver and do not want to go home first,
one of the excellent THAI HOUSE restaurants is in the same building and
makes a nice start to the evening.
I, david ingram, manage to make three out of 4 of them to cover mortgage
interest as a deduction and give the class an adding test.
David Ingram's US/Canada Services
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Disclaimer: This question has been answered without detailed information or
consultation and is to be regarded only as general comment. Nothing in
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