Sent: Thursday, October 26, 2006 5:01 PM To: taxman at centa.com Subject: Borrowing cost to buy rental property Hi, Two years ago, I borrowed money to finance the down payment of a pre-construction residential apartment in Vancouver with the intention of renting it out upon completion. Due to cash flow problems that I did not anticipate, I now have to sell the unit before any rental income is generated. Could I add to the purchase price the interest I have paid, to calculate the cost basis and capital gains? Would appreciate your response. ============================================ david ingram replies: You don't just deduct it. You have to make a formal election. Bulletin IT121R3 states: Depreciable Property 1. Subsections 21(1) and (3) allow a taxpayer to elect to capitalize the cost of money borrowed for the purpose of acquiring depreciable property. Depreciable property is property in respect of which the taxpayer is entitled to deduct capital cost allowance in computing income for a taxation year, whether or not any such deduction is actually made. ----------------------------------- You can read the whole bulletin at: http://www.cra-arc.gc.ca/formspubs/prioryear/it121r3/it121r3-e.ht ml ------------------------------ This is particularly important when dealing with rental properties owned by non-residents. The Canadian Tax Act does NOT allow the carrying forward of rental losses. It is therefore very important to capitalize enough interest to reduce losses to zero. By capitalizing the interest (and sometimes repairs) the non-resident gets to deduct the expense against the eventual sale as you will be doing. You should have filed returns fro the last two years to capitalize that interest. ======================================================== David Ingram's US / Canada Services US / Canada / Mexico tax, Immigration and working Visa Specialists US / Canada Real Estate Specialists My Home office is at: 4466 Prospect Road North Vancouver, BC, CANADA, V7N 3L7 Cell (604) 657-8451 - (604) 980-0321 Fax (604) 980-0325 Calls welcomed from 10 AM to 10 PM 7 days a week Vancouver (LA) time - (please do not fax or phone outside of those hours as this is a home office) email to taxman at centa.com 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 for expert help, assistance, preparation, or consultation in connection with personal or business affairs such as at www.centa.com. If you forward this message, this disclaimer must be included." Be ALERT, the world needs more "lerts" international non-resident cross border income tax help assistance expert preparation & immigration consultant david ingram, experts on rentals mutual funds RRSP RESP IRA 401(K) & divorce preparer preparers consultants Alaska, Alabama, Arkansas, Arizona, California, Colorado, Connecticut, Delaware, District of Columbia, Florida, Garland, Georgia, Hawaii, Idaho, Illinois, Indiana, Iowa, Kansas, Kentucky, Louisiana, Maine, Maryland, Massachusetts, Michigan, Minnesota, Mississippi, Missouri, Montana, Nebraska, Nevada, New Hampshire, New Jersey, New Mexico, New York, North Carolina, North Dakota, Ohio, Oklahoma, Oregon. 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