tag:blogger.com,1999:blog-5465015914589377788.post1534595305918823231..comments2024-03-20T09:32:16.592-04:00Comments on Michael James on Money: Deducting Mortgage Interest on Rental PropertiesMichael Jameshttp://www.blogger.com/profile/10362529610470788243noreply@blogger.comBlogger27125tag:blogger.com,1999:blog-5465015914589377788.post-60402574321761654812019-04-29T14:49:58.100-04:002019-04-29T14:49:58.100-04:00@Anonymous: Thanks for pointing this out. The link...@Anonymous: Thanks for pointing this out. The link used to go to the right place, but has since changed, so I removed the comment.Michael Jameshttps://www.blogger.com/profile/10362529610470788243noreply@blogger.comtag:blogger.com,1999:blog-5465015914589377788.post-87431332780261275772019-04-29T11:56:53.151-04:002019-04-29T11:56:53.151-04:00This link took me to a company websiteThis link took me to a company websiteAnonymousnoreply@blogger.comtag:blogger.com,1999:blog-5465015914589377788.post-35967113145140805662014-02-28T17:47:59.260-05:002014-02-28T17:47:59.260-05:00@Lucas: It's not clear to me what your scenari...@Lucas: It's not clear to me what your scenario is. When you say "refinance the original mortgage" do you mean make this mortgage larger? The situation from the original post is a fully paid-for property that the owner wishes to rent out. If you take out a fresh mortgage on such a property, CRA wants to know what you use the money for. Clearly you're not using it to buy the property, but for some other purpose. This appears to make the interest payments not tax-deductible against rental income.<br /><br />If you have an existing mortgage on a property and you got the mortgage originally to purchase the property, then it seems that you could rent out the property and get some tax relief from the interest. However, if at any time you dip into your equity (and grow the mortgage) to get money for some other purpose, the interest you pay on this portion of the mortgage appears not to be tax-deductible.<br /><br />In summary, my best guess based on my limited knowledge of these matters is that you are out of luck on any portion of the property that you have actually paid off, except for circumstances where you get another loan to pay off part of the mortgage. <br /><br />I think you should definitely find someone with more knowledge of these matters than I have to sort this out.Michael Jameshttps://www.blogger.com/profile/10362529610470788243noreply@blogger.comtag:blogger.com,1999:blog-5465015914589377788.post-1918301219634575652014-02-28T17:33:00.377-05:002014-02-28T17:33:00.377-05:00And I found the following here: http://www.cra-arc...And I found the following here: http://www.cra-arc.gc.ca/E/pub/tp/it533/it533-e.html#P122_10420<br /><br />Refinancing transactions<br />¶ 41. Where borrowed money is used to repay existing borrowed money or an amount payable for property acquired, the new borrowed money is deemed to have been used for the purpose for which the money previously borrowed was used or to acquire the property upon which amounts were owing, as the case may be, by virtue of subsection 20(3).<br /><br />So it seems to me if I refiance the original mortgage I got to buy the property I was going to rent it out, then the new mortgage should be viewed as the same purpose as the previous one, which is buying the property. Lucas Tianhttps://www.blogger.com/profile/07281119234169764509noreply@blogger.comtag:blogger.com,1999:blog-5465015914589377788.post-52852777696553880742014-02-28T11:01:31.518-05:002014-02-28T11:01:31.518-05:00Hi Michael, I think it is quite "different&qu...Hi Michael, I think it is quite "different". If you read the The following Q and A on page 12 of CRA’s Rental Income guide explains CRA’s thinking:<br />Q. I own and rent a semi-detached house. This year, I refinanced the property to increase the mortgage because I needed money for a down payment on my personal residence. Can I deduct the additional interest on the mortgage against my rental income?<br /><br />A. No. You are making personal use of the funds you got from refinancing your rental property. As a result, you cannot deduct the additional interest when you calculate your net income or loss from your rental property.<br /><br />Carefully, I think the point here is refinancing your "rental property" and "additional interest", which means the "original interest" on your original mortgage on the "rental property" is still tax deductible. So I think if the "refiancing" was done when the property is still my primary resident, then that should not apply to the rule on "refinancing your rental property", and this seems more fair no matter if you buy a "new" rental property, or turn your primary resident into a rental property. However I will need to confirm this with an accountant. But at least this is what my TD financial advisor was telling me, of course she could be wrong ... In Canada many thing has to be figured out my ourselves .... Lucas Tianhttps://www.blogger.com/profile/07281119234169764509noreply@blogger.comtag:blogger.com,1999:blog-5465015914589377788.post-445984911318844102014-02-28T09:52:24.664-05:002014-02-28T09:52:24.664-05:00@Lucas: I don't see why this would make a diff...@Lucas: I don't see why this would make a difference, but I'm no expert in these matters.Michael Jameshttps://www.blogger.com/profile/10362529610470788243noreply@blogger.comtag:blogger.com,1999:blog-5465015914589377788.post-38928614736527064932014-02-27T23:16:39.241-05:002014-02-27T23:16:39.241-05:00Hi, thanks for this post. I have a question, what ...Hi, thanks for this post. I have a question, what if the "refinancing" on the rental property is done before I rent out my property? In that case will then the interest occurred on the mortgage deductible from rental income? Thanks!Lucas Tianhttps://www.blogger.com/profile/07281119234169764509noreply@blogger.comtag:blogger.com,1999:blog-5465015914589377788.post-43742448508609509712014-01-13T17:28:48.458-05:002014-01-13T17:28:48.458-05:00Thanks. This is exactly what I was looking for. I ...Thanks. This is exactly what I was looking for. I actually called CRA to ask about this and they basically said that this constitutes "tax planning" and they can't advise me on whether this can or cannot be done. Basically that I have to see an accountant. Still, I got the feeling based on other things they said that it's not allowed.Anonymoushttps://www.blogger.com/profile/00711505658245040849noreply@blogger.comtag:blogger.com,1999:blog-5465015914589377788.post-80591585022398116352013-06-10T21:41:51.400-04:002013-06-10T21:41:51.400-04:00Hi Ben, I know you posted this a year ago, but jus...Hi Ben, I know you posted this a year ago, but just read your post and was wondering if you found a solution? I am in the same situation and do not understand why I could not use the money I invested and equity I acquired on my house, while it was my principal residence, to finance my new principal residence. My plan would be to refinance the rental property, leaving 20% in, and deducting the interests against the rental income. But not sure its allowed. Were you able to do it? I am about to seek advice from an accountant, but thought I would look on the net first.<br />Thanks, MyleneMylenehttps://www.blogger.com/profile/08381488329234311186noreply@blogger.comtag:blogger.com,1999:blog-5465015914589377788.post-18531565435436371122013-02-01T16:16:28.446-05:002013-02-01T16:16:28.446-05:00@Anonymous: You'll have to point me to the le...@Anonymous: You'll have to point me to the letter you're talking about for me to try to help. There are definitely taxes involved with selling land if it's not considered your primary residence.Michael Jameshttps://www.blogger.com/profile/10362529610470788243noreply@blogger.comtag:blogger.com,1999:blog-5465015914589377788.post-13038293518384733932013-02-01T16:12:43.052-05:002013-02-01T16:12:43.052-05:00The CRA letter says there no tax to be paid and no...The CRA letter says there no tax to be paid and no need to register land transfer. Anyone tried and can confirm? Anonymousnoreply@blogger.comtag:blogger.com,1999:blog-5465015914589377788.post-51940989977254285972012-09-10T20:39:20.211-04:002012-09-10T20:39:20.211-04:00I have a question regarding the "selling to a...I have a question regarding the "selling to a trusted family member and buying back" solution. Wouldn't that subject the person to provincial and potentially municipal land transfer taxes? In Toronto, the LTT can be as high as 15K for a $600K house. By doing the transaction twice, wouldn't you in essence lose $30k to the government in LTT?Anonymousnoreply@blogger.comtag:blogger.com,1999:blog-5465015914589377788.post-5487355797115710902012-08-20T13:42:48.708-04:002012-08-20T13:42:48.708-04:00This comment has been removed by a blog administrator.prlj13https://www.blogger.com/profile/00932888436794418736noreply@blogger.comtag:blogger.com,1999:blog-5465015914589377788.post-63043529376442943502012-07-10T18:01:16.919-04:002012-07-10T18:01:16.919-04:00My understanding is that the solution that CRA gav...My understanding is that the solution that CRA gave for this is found in CRA interpretation 2009-0352171E5 and involves the sale to a trusted family member etc. in exchange for a promissory note. The seller of the house then takes out a mortgage to repay the promissory note. The interest from the mortgage on the rental property is then tax deductible.Anonymousnoreply@blogger.comtag:blogger.com,1999:blog-5465015914589377788.post-74308484882252722592012-05-06T13:07:12.195-04:002012-05-06T13:07:12.195-04:00@Anonymous: It sounds like you're going in th...@Anonymous: It sounds like you're going in the opposite direction; turning a rental property into a principal residence. I'm not aware of any issues with this, but I'm no expert. As for choosing a fair market value, you would need to find out what is acceptable in Quebec.Michael Jameshttps://www.blogger.com/profile/10362529610470788243noreply@blogger.comtag:blogger.com,1999:blog-5465015914589377788.post-51402038326343142012012-05-06T13:01:40.640-04:002012-05-06T13:01:40.640-04:00Hi
my wife owns a rental property in Quebec.We wou...Hi<br />my wife owns a rental property in Quebec.We would like to make it our principal residence Is there any reason I cannot or should not purchase it from her?<br />How do I decide a reasonable purchase price.Is it a multiple of rental income or municipal valuation?Anonymousnoreply@blogger.comtag:blogger.com,1999:blog-5465015914589377788.post-39197874706804285542012-03-20T23:21:17.604-04:002012-03-20T23:21:17.604-04:00I'm running into this issue now. I fully own a...I'm running into this issue now. I fully own and live in a small home. Plan is to rent it out and refinance it to 20% so I can put money towards a new house to live in. I want to deduct interest expense. I'm still searching for a solution.Ben Dhttps://www.blogger.com/profile/09958139598603565304noreply@blogger.comtag:blogger.com,1999:blog-5465015914589377788.post-32565417070764787152011-12-08T19:51:58.490-05:002011-12-08T19:51:58.490-05:00@Elliot: I'm no tax expert, but my guess is t...@Elliot: I'm no tax expert, but my guess is that the mortgage interest would be deductible against the GIC interest only for as long as the GIC are held. Once the GICs are sold and the money used to buy a principal residence, I can't see why Andy would be allowed to deduct mortgage interest any more.Michael Jameshttps://www.blogger.com/profile/10362529610470788243noreply@blogger.comtag:blogger.com,1999:blog-5465015914589377788.post-23433309096511976802011-12-08T19:40:17.512-05:002011-12-08T19:40:17.512-05:00Could one refinance the rental property (or soon t...Could one refinance the rental property (or soon to be rental property), and use the cash lump sum to invest in a 3-month non-registered short term GIC? This would be the investment with an expectation of a return.<br />Then, when the GIC is cashed out in 3 months, use these funds toward the purchase of the new principal residence. The interest income on the GIC would be subject to taxation just like earned income, but would the mortgage interest on the rental property mortgage then be deductible against all future rental income?Elliotnoreply@blogger.comtag:blogger.com,1999:blog-5465015914589377788.post-65469508433520972042011-09-07T17:52:30.613-04:002011-09-07T17:52:30.613-04:00Were Andy to have a spouse and "sell" th...Were Andy to have a spouse and "sell" this property to his spouse with a promissary note at the prescribed rate assigned by the CRA a deemed disposition would occur and Andy's spouse could then claim all income generated and write off any interest applied. At the end of the day the benefits would not be spread between the couple, however the relief would be felt greater than the scneario of no one getting to claim a deduction. This works particularly well in cases where one spouse is in a considerably higher bracket....TheCuznoreply@blogger.comtag:blogger.com,1999:blog-5465015914589377788.post-32547237939372305832011-01-14T10:23:29.802-05:002011-01-14T10:23:29.802-05:00@Sampson: Thanks for giving it a name. This will...@Sampson: Thanks for giving it a name. This will make it easier for Andy to ask a tax expert about it.Michael Jameshttps://www.blogger.com/profile/10362529610470788243noreply@blogger.comtag:blogger.com,1999:blog-5465015914589377788.post-8392611972802174462011-01-14T10:21:32.584-05:002011-01-14T10:21:32.584-05:002nd option Potato describes is basically a 'ca...2nd option Potato describes is basically a 'cash dam' and is both tested and legal. Doesn't have to be a HELOC, but that would probably produce a lower rate.Sampsonnoreply@blogger.comtag:blogger.com,1999:blog-5465015914589377788.post-2952918698814714042011-01-11T16:40:07.034-05:002011-01-11T16:40:07.034-05:00@Philbert: This must be a very common scenario. ...@Philbert: This must be a very common scenario. I can't see much reason why the interest shouldn't be deductible against rental income, but my opinion isn't going to have any influence.Michael Jameshttps://www.blogger.com/profile/10362529610470788243noreply@blogger.comtag:blogger.com,1999:blog-5465015914589377788.post-64215219078692425872011-01-11T11:36:20.256-05:002011-01-11T11:36:20.256-05:00This really is an unfortunate situation. I recentl...This really is an unfortunate situation. I recently experienced this myself. I own a duplex and about 1.5 years ago I lived in one side and rented out the other. I bought a new house to live in and took out a HELC on the one side of the duplex as a downpayment on the new place. But because the debt is not for an income producing asset I cannot deduct any of the interest from the HELC.Philberthttps://www.blogger.com/profile/10454156659046037606noreply@blogger.comtag:blogger.com,1999:blog-5465015914589377788.post-66327451969079178082011-01-11T09:37:29.979-05:002011-01-11T09:37:29.979-05:00@Potato: If Andy has non-registered investments y...@Potato: If Andy has non-registered investments your first suggestion will work. The second suggestion looks interesting, but I'd definitely want an expert's opinion before trying it.<br /><br />@Robert: This is definitely a case of might makes right. Even if I were to fight CRA and win I'd still consider this to be a "life" loss. The corporation direction sounds interesting, but again I'd get an expert's opinion.Michael Jameshttps://www.blogger.com/profile/10362529610470788243noreply@blogger.com