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This
question from "Ask an Expert" at www.jurock.com,
more specifically at:http://www2.jurock.com/askexpert/ask.asp?aid=121&cid=63
My question is: Canadian-specific QUESTION: I have 30,000 equity in my principal residence and have 80,000 in savings. I want to buy a rental property using the 80,000 savings. Should I put the 80,000 into my principal residence first and then borrow against the equity. Will this make the down payment for the rental property tax deductible? Also, when I borrow against equity in a principal residence for this purpose, how does the bank structure such a loan - a 2nd mortgage on my principal residence, a personal loan with my principal residence as security, etc.? Thanks --------------------------------------------------------------------------- David Ingram replies: You have it right. Use the $80,000 to pay down the existing mortgage. Then borrow back the down payment for the rental. Try NOT to combine the mortgage because it is so much easier to identify deductible interest when the amounts are separated. If you call someone like Joan Marsh (604) 535-9981, she will set you up with two mortgages because she understand s the system unlike most mortgage people. Even though I am a licensed mortgage broker, two of my own staff members have obtained their own mortgages from Joan in the last two months and my wife is doing so as well and "believe it or not", my wife is also a licensed mortgage broker. After you have your "paid down mortgage" with the non-deductible interest and the deductible mortgage separated, take all your rent and use it to pay down the "non-deductible" interest and borrow money to pay expenses on the rental. The borrowed money can even be used to make the mortgage payment on the rental which would then increase the outstanding deductible loan. You would, of course, use the rent received to pay down the non-deductible mortgage. You can find out a lot more about making your mortgage deductible by clicking on: http://www.centa.com/Nov2001.htm The first page of this deals with "when Canadians have to file a US tax return." The next eleven pages tell you how to make your mortgage interest deductible. For others who want to ask a question, click on: http://www2.jurock.com/askexpert/ask.asp?aid=121&cid=63 |
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