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Great video Cherry! Way too many Canadians unfortunately don’t put this strategy to work. You can have the best of both worlds. Tax deductible debt and the ability to sell your primary residence without paying capital gains tax. It’s a win win. Keep up with the great content.
I'm new in Canada and glad to have found your channel. This was very insightful. I'd appreciate if you could make videos on the following: 1. Which provinces are most tax efficient for first time home buyers? 2. Which type of RE has appreciated in value the most over last 20 years? 3. For first time home buyers using FHSA & RRSP to buy their home, what are the things we need to consider before first purchase and how can we lower taxable income?
primary residence isnt taxable this doesnt matter which province you are on it completely depends, even in the same city two very near neighborhoods have had hugely different results on the same asset class let alone condo, vs. townhouse, vs. single family house. Also past results do nothing to tell us about the future. basically you are asking what to buy for the best returns. No one can tell you oh buy this. Life just isnt that simple.
Hi You started off with primary residence and then talked about paying off rental property expenses using line of credit? What if someone does not have a rental property?
Hi Cherry, Correction, there is no savings in the example that you show. the values on Column O are incorrect. Please check. 11:51 you mention that at Year 3, "the line of credit balance would have been increased to $144,000... the additional line of credit interest that you would have to pay is about $9,000 by now, cumulatively, all three 3 years combined." This is incorrect. The cumulative LOC interest by end of Year 3 should be $16,539, not $9,089 (see cell O10). And so the 5 year cumulative after tax interest on the LOC should be $27,267, not $9,745 (see cell Q12). This means that in this example of a 2.94% mortgage and 7.45% LOC, there is, unfortunately, a loss (no savings) by doing this.
Agree, I didn't go over the details on her numbers, but generally it is just swapping the interest from a lower mortgage interest to a higher HELOC interest and then save on the tax deduction. So if the HELOC interest is 7.45%, tax saving is 40%, net interest is (7.45% * (1 - 40%)) = 4.47% which is higher than your mortgage interest (2.94%), then you're losing money.
It appears to be the average interest assuming semi-monthly and monthly payments ... not sure why but if we check the interest calculation of semi-monthly (~$1146) + monthly (~$2748) / 2 = ~$1947, which is very close to their assumptions ... this pattern continues for each year.
Hi Cherry, thanks for the awesome video. One Question, if I didn’t have a rental property but I had another business could this method still work. And if not why?
Hi Cherry, thanks for this video! Just to clarify If I collected Rental Income say $4K in a month and I pre-pay my Principal Residence Mortgage then I drawn out the same $4K from my set up HELOC & used it to pay all my Rental Expenses,, then this $4K will become Tax Deductible in full?
Cherry can you pls discuss how long you can rent your primary residence to avoid capital gains taxes? If I have a condo and I rent it out to tenant, and rent another condo myself, can I still claim capital gain for primary residence
Unfortunately this analysis is incorrect because it compares the cumulative int savings on the mortgage to the annual after-tax int on the LOC. So it is comparing a stock with a flow. Compare apples to apples and you'll see this is costing you way more money, and the logic is pretty simple: if the after-tax return on the money borrowed from the LOC is less than the after-tax int cost, you are losing money, and that's exactly what's happening here. E.g., for year 4, you are comparing the cumulative non-deduct. int saved (11.4k) to the annual after-tax cost of the LOC (7.6k) and saying you've saved 3.8k. That's not how math works. The LOC is costing 7.6 in year 4 alone, but the 11.4k in int saved on the morgage is for years 1-4 combined.
This, the smith manoeuvre, infininite banking and velocity banking although different products are all pitched in this same way. Makes sense for some with alot of cash but I don't see how this particular one works especially with rates higher now.
@@czapskibusinessgroup Yeah but not quite. This particular video was not pitched the same way. It was pitched in a way that's inconsistent with basic math. I've brought this to her attention in another comment that she replied to but as far as I can tell she has never made a correction
@@arnoldvosloo220agreed. I just commented again about this. The values on column O of the spreadsheet are wrong! Means the LOC interest cost is understated. If corrected, there is no savings.
@@vlog0I find it bothersome too. As an unlightened viewer, I would like her to answer and confirm or disprove the correction. Not responding undermines her credibility.
Cherry, thank you for the great video, i have 1 QUESTION - if i am borrowing 48k from the LOC to pay for rental property expenses I would need to have this much in the expenses - am i able to use these LOC borrowed funds for my mortgage payments and maintenance payments on the rental property or these do not qualify as expenses?
Hi Cherry, Thank you for the great information! Is this assuming that the rental property is owned personally? How will it work if the rental property is owned by a corp ad the primary residence is owned personally? Thank you
Great video Cherry! Can we use the investment amount withdrawn from the HELOC to invest in a foreign country? Example: buying investment property but outside Canada?
Cherry your videos are super informative. Thank you. Just one question if you buy an investment property from a builder and close it. Sell the property after 7 months. Do you have to pay capital gain income tax on profit or business tax on 100 percent of income ?
Generally speaking if you make money in canada, you're subject to tax. Unless you lived in the property as your primary residence, in that case you might have some leeway.
I need help understanding the missing parts of this. You assume making $4,000 off a rental property, but what if I need to be cash-positive after paying condo fees and a second mortgage? Do you know if this still applies?
Thanks Cherry! This is excellent. I've really been enjoying these videos. A question. If someone takes HELOC from their primary home, and use it as a down payment to buy a rental property, is the interest accrued on the HELOC annually tax deductible, since it's all part of the investment?
@@RealEstateTaxTipsI have so many questions and I have till April to make a sound decision around these. Do you provide a free consultation? btw I’m located in Calgary Alberta
Great video Cherry! They must also remember not to use that line of credit for non-investment purchases correct? From what I hear, that would create a bit of a nightmare on the accounting side.
Can a Sbloc be use instead of a Heloc . And is there a limit to the lost that can be declare on a yearly basis ? Considering +- 50k rental income and a w-2 income of 200k a year . Exemple having a 100k “cost of interest “ and 50k rental receipts?
Thanks Cherry! Can you use the funds from the HELOC and buy a private REIT that produces 100% ROC distributions, and still be tax-deductible? Would the RoC still be considered as the acceptable investment income?
Generally speaking the amount should be taxable as interest income/dividend income/rental income, etc. If there's no reasonable of expectation on receiving those income, CRA can potentially challenge your deductibility
I wish the spreadsheet is some properly formulated spreadsheet, unfortunately it's a lot of manual labour behind the scene and it is linked to multiple spreadsheets. Thank you though.
Great information and right to the point. Can you share the Excel sheet. Also can you provide recommendations to keep log of all these LOC transaction separate from other transactions so that deductions can be validated in case of a Tax review? Additionally you used current high interest rate 7.x in this video and we are still saving money. That tells how effective this strategy would be, once interest rates will start going down.
The excel document is something we provide our clients with, as for the Smith Maneuver I would recommend you schedule a meeting with my team to review the process and how it can benefit you by making your home mortgage interest a deduction
Hi Cherry, I have a question about the investment vehicle. In my case if choose to invest the withdrawn HELOC $ into a fund/stocks that pays me dividends and capital gains. Would I be taxed differently (i.e no expenses, no property taxes, no insurance etc) just trading commisions. Thank you
Any borrowing made to generate income is tax deductible. If your primary goal is to get capital gains then you don’t get tax deductions. All investment must be in non registered accounts only for tax deductions. You don’t get tax deduction if you borrow and invest in TFSA or RRSP.
I was familiar with the Smith maneuver but more towards using the money to invest in stocks etc which you can never rely on. My question is, once you are done paying the mortgage on your house, you will still be left with the HELOC debt, wont you? What then? Also, you suggest this to be along the 5 years of the term. But what exactly do you mean by that, should be started with the beginning of term? What happens at the end of the term?
You're right. At the end, you would have paid down the entire home mortgage, but left with HELOC debt. At which time, you would then use your monthly mortgage payment toward your home to pay down your HELOC debt - if that's what you want to do - depending on your investment your portfolio at that time. Now...I am mentioning five year term - primarily because majority of our mortgages have five year term. You are required to renew with new terms (new interest rate and new amortization period, etc.) regardless.
@@RealEstateTaxTips but then, the Excel spreadsheet does not take that into consideration - the debt that we now have on the HELOC. What do you mean if that is what you choose to do, what other options do I have ? :)
in US, there is no capital gain tax in selling your house as long as its your primary residence for 2 or more years prior. also in US, aside from tax shelter, theres 30yr fixed interest. meaning your first month mortgage payment will be the same for the life of your home loan.
This is interesting, but the situation should be more complicated than this. For example, even though you are left with less debt, but interest on the debt is a weight of mortgage rate and LOC rate. We can look at your first example, if you don’t do the steps, you are left with a higher debt, 665847, but the rate for this debt is 2.94%. However, if you are doing the steps, 407766 is with rate 2.94%, the remaining 240000 you have to pay 7.45% as the rate. For the second example, when you renew your mortgage, your mortgage can go down a lot, but the LOC rate may not go down. So again, you are stuck with higher interest rate.
This is really interesting. I just discovered your channel and went back to watch that video from 2 years ago. I don't have any rental properties and don't intend to invest in any. However, I invest in dividend stocks, including many non-Canadian dividend stocks, to generate a (somewhat) steady income stream. For non-Canadian dividend (which is about 70% in my dividend income stream now), the dividend is taxed simply as ordinary income. Is there a way to use HELOC on my primary residence to save tax on foreign dividend income or even interest I receive from bond or savings accounts/GIC/term deposits?
@@RealEstateTaxTips Thanks for the quick response! A few follow-up questions: (1) you mentioned in Step 2 that we should arrange to have the rental income going directly into the HELOC account (presumably to show to CRA that the income is to repay the loan so the loan is indeed for the investment?), however, for dividend, that is not possible since the dividend would be paid into the brokerage account where the stock is being held. To show the linkage, would it be sufficient for CRA if I regularly (say monthly) and manually move the dividend paid from the brokerage cash account into the HELOC account to repay the HELOC amount? (2) Since there is no maintenance cost for stocks, in order to show CRA that the HELOC loan is used to fund the investment of the stock, is it that I need to manually and explicitly take the money (same amount as the stock purchase) out of my HELOC account and move it into the brokerage cash account whenever I buy a stock? (3) Does this concept also apply to a personal loan or personal line of credit? e.g. if I take money out of a personal line of credit and manually transfer that into a brokerage cash account to buy stocks (or even GIC), and every time there is a dividend payment (or when I sell the stock or when the GIC matures), I transfer the amount back into the personal line of credit, then the interests incurred on the personal line of credit can be used to reduce tax from the dividend and interest? Sorry for asking these detailed questions here, but you have really introduced an interesting concept here so really want to know how far I can push this.
@@raylee17The main thing is to have a paper trail of the funds from the "investment" HELOC go directly into your investment brokerage so that it's clear that the funds are indeed funding an investment and not for personal use. This way the interest from the investment HELOC can be deductible. As for collected dividends, it doesn't matter where it goes afterwards from a tax perspective however, you do want it to go into your primary mortgage and not back into your investment HELOC so you can reduce your outstanding balance of your primary mortgage in which the interest is non deductible. This will also give you more borrowing amount in your investment HELOC to invest further if you wanted to grow your portfolio faster.
Cherry why not give downtown payment for rental from HELOC so you are able to claim interest from that in your taxes against ur rental property income?
Assuming you're a Canadian tax resident and you own properties in the USA in your personal name - and you intend to apply this process on your home in Canada, then it will work... it is a bit more work given that the rent received is in USD.
Thanks a lot Cherry! I'm curious that if my rental property with a mortgage that is already suffer a high interest as of today (which is a high expense and leaves almost zero net income or loss of the rental property). Is it allowed and is it worth to use the above method to generate a even greater loss to deduct the employment income and other income (interest, stock, etc.)?
I think one must be very careful using this to create losses or increasing the rental loss which you then use to offset personal taxes. The CRA will be watching these "maneuvers" closely when many, many more landlords in Canada are claiming losses this year due to high variable interest rates. While this "cash damming" approach seems theoretically legal on the surface, there are indicators that CRA could disallow these interest loss deductions since the interest claimed isn't used to generate income/profit if it's already clear the rental is in a loss. The "test" for CRA for interest deductibility is that the investment should have a reasonable expectation to earn profit/income, isn't it? Would love to hear Cherry's opinion and the opinion of other investors that have used this method - seems very risky right now. Does CRA have a case to disallow such deductions if they increase the deductible loss on a rental investment? Any tax lawyers in this group? Thanks.
While in theory the strategy is legit, it does have the downside, like I mentioned in the video - that you truly do have a short-term cash flow negative situation. If you are already in a negative cash flow situation, I don't know if it is smart to make it worse...
Hi Cherry great illustration but the principal portion of the mortgage payment for the rental property is not tax deductible so how does this work when we are trying to pay the entire mortgage payment with the HELOC also what do you do when you dont have any room to borrow from your HELOC as you can only draw 80% from your principal property, lastly not sure if you allowed to include and add your last years HELOC interest rate to your current year as you have already claimed it, Hope it make sense
The purpose of doing this is to make the mortgage interest on your principal residence a deduction on the rental income, normally the interest on your principal residence is not deducted anywhere against your income, this makes it possible. For a further explanation of how this applies to your situation I recommend you schedule a call with my team.
ua-cam.com/video/vZFJFOf5o00/v-deo.html You can watch the above video - and the only difference is that you can only deduct the expenses that are related to the rental portion, usually allocated based on square footage.
Absolutely - however, it goes back to your investment return. I will keep this in mind for future video production with dividend income/business income/interest income.
What about rates being higher now (4-6%) fixed and variable rates are more. You're having less paydown on your principal and offsetting to the credit line which is also high. Does this really work in this type of environment ?
Well done on this! A great example of the smith maneuver. Are you able to share your excel sheet with your followers? It would be great run though different scenarios. Ex - etf investing and getting various levels of yearly returns, different marginal tax rates, etc. thanks again. I’ll share with my friends and colleagues.
Hi there!! Great information. Going to watch the 5 steps now! Question, Does this work if your rental is an addition to your primary residence (airbnb/rental). Spending $300k from HELOC to build a 2 bed/2bath above the garage. Plan to rent it out from spring 2024. expect about $50k income.
I’m your subscriber now , nice to know all the options, regarding principal mortgage , to tax deductible machine, specially I have a rental property outside the province pls. Help me how and how to obtain such thing
If you want to reduce your rental income and the applicable tax to it, can you not apply mortgage interest as a finance charge that will reduce your rental Income?
Yes it would be deductible once you start earning rental income. I would recommend you schedule a meeting with my team to fully understand your circumstances and provide you the correct guidance for the treatment of the interest you are paying.
You're absolutely right. For the purpose of our analysis, at least the variable mortgage rate vs the variable rate on LOC, it would make sense to fix it at one point in time. Again, whether the rate will go down or not really goes back to what your outlook is. Hence this can be a very personalized analysis as well.
Question: This has nothing to do with a refinance right? This would be only if you had that particular re-advanceable mortgage set up so that you can opt in for establishing a HELOC right?
The process doesn't have anything to do with refinance. But eventually you might want to convert your HELOC balance to a mortgage and at that point it might have something to do with refinancing.
This can also applies (the five step process) to business income, dividend income and interest income - assuming that they are earned in your personal name. If they are earned in the corporation's name, that's a little more complicated. if the income is earned in registered accounts (RRSPs or TFSAs) then this process doesn't apply
Ok, but what about comparing these two examples with a third option of just applying the $48K rental income directly to principal prepayment each year ?
Give an example without rental property because in Ontario the LTB allows tenant to live rent free for at least a year and there is no cash flow for landlord.
Yep, that's definitely a flaw in our system. However, during the year of receiving not rent, you're still eligible for the deductions. It's sad. It also goes to show that diversification in our investment strategies is important.
Just to add to this, if your tenant didn’t pay for a year, you would pay all rental expenses with your HELOC b/c you would have to since no rent coming in (just as you would if you did have rent coming in with this 5-step technique). And then you would deduct the interest on the HELOC as a rental expense as Cherry said.
Hi Cherry, would it be possible to share the excel file that you have? I tried to replicate your numbers to understand, but I couldn't get to some of the numbers you did. For example, how did you get 1,937 of additional LOC Interest in year 1? I thought it might have been 48,000 * 7.45% = 3,576. Many thanks!
Unfortunately my spreadsheet is linked to multiple spreadsheets. It is a lot in my brain, rather than on the spreadsheet. Specifically the year 1 is calculated on a monthly basis - given that the $4K rent received is being done on a monthly basis.
Let's say I did this for 15 years and my LOC interest cost became greater than my investment income, will that be a problem? Won't the CRA be like, hey, your investment income can't even cover your interest, why are you doing this? Secondly, if the above isn't a problem, then can the interest expense be deducted against my normal income? Thanks!
But it’s a good question. How many years can you have a rental loss without the CRA asking questions? With the added expense of the HELOC interest with this 5-step method, it is more likely to be a rental loss.
With your example, are you making the assumption that your rental income of $48K is also the exact amount of the yearly expenses of the rental property? What if the expenses are less and your rental income is cashflowing positive? In that situation the HELOC balance shouldn't increase by $48K annually. Will this example still show enough difference in the first example when the rental property is cashflowing positive?
Great comment. Absolutely right. I'm taking the assumption that the expenses are more or less the same amount as what we receive. To answer your question, it really goes back to what your expense to rent income ratio. Maybe it will be worthwhile doing it maybe it won't. Very specific
You have to use the borrowed funds to earn investment income/rental income/business income for it to be deductible. If you have higher interest cost compared to the investment income/rental income/business income you received, you're still eligible for a deduction. The excess can be used to offset against your salary income.
@@RealEstateTaxTips thank you. I'd be very interested to see a working example of buying a rental property in a less expensive market and where the income is about half that. Does it still work out?
That's more complicated - but yes, in some cases, it can be a better choice. On the flip side, because the government just announced that they're going to raise the capital gain inclusion rate as of June 25 and onwards, it might not be a smart idea to put all your properties in the corporation... based on the current information that we know...
So I have a some rental properties and my accountant has warned me against this for a simple double dip tax issue. The mortgage on my rental property is tax deductible. If I take the rental income put it on my primary mortgage, then take the HELOC space created out to pay for the rental property mortgage and try to deduct that again, I've made the same deduction twice. I could be missing something but I would be careful with this folks.
You use rental income to prepay your primary mortgage. Then use the created heloc equity to pay your mortgage. Your rental income is taxed personally or through your corp. there isn’t double dipping here.
@@RealEstateTaxTips No worries, it was from this section: "I felt a bit bumped because I waived my right to apply. But well, I could always get into those Big Five firms later." I think you are trying to use the expression "bummed out" meaning: "sad". Just an idiom, hard to pick up on this stuff as an ESL speaker, and spellcheck many have even changed "bummed" to "bumped", because "bummed" is so colloquial. oh, and also "but oh well" instead of "but well"
New rule is keep doing what you are doing investors but average joe No more credit to you sir! Stop buying stuff cuz you are adding to demand The rules are written by non broke people Usually when you invest it’s because you have an excess of funds
It isn't a fancy spreadsheet that has high tech forumla. It's a spreadsheet that's very manual and basic. Even if I share it with you, it is linked to multiple different spreadsheets that no one else understands. I wish my excel skill is a bit better but sadly, my excel skill is just enough to get by.
2.94% Cummulative int Balance y1 21,774 729,375 y2 42,932 708,135 y3 63,458 686,262 y4 83,333 663,738 y5 102,536 640,542 mortgage calculator give me 640K of balance after 5 years with the Option 1 - Done nothing. Am I doing something wrong?
Frankly I didn’t watch the video. But from the title. I should buy an over-leveraged priced house with 25 ( some cases 90) years mortgage and 5% interest to save a dime. Wow nice plan i have never thought or heard someone thought about it.
Hey, thanks for providing your comment. If you haven't watched the video, it's kinda hard to respond to you. When you get the time to watch the video, feel free to leave a comment. I work with many real estate investors and they already own their own homes to begin with. I'm just sharing a process that they can use to create bigger deduction. The debt you owe before applying the process and after you apply this process is exactly the same.
I've asked numerous times for a home equity line. Refused every time for different reasons. Every conversation lead to the bank pitching a loan. I refused the loan because I have equity in my home. Now that interest rate moved another 25 points, this is not feasible. I'm locked into an expense without options other than selling my home. Sour taste in my mouth. Then yesterday I was informed that home equity line of credit is not something available to owners since 2018. What now?
I hear your frustration - I'm no mortgage specialist and can only share my personal experience with mortgages. A few years back, they did take away the HELOC up to 80% of LTV. However, they would allow you to borrow against it as a mortgage up to 80% LTV. In the last few years, I have seen variations of HELOC and mortgage up to 80% through my clients. HELOC is always available, but it is just the terms could be different. It's worthwhile speaking to mortgage agents or different bank to get a different perspective. Good luck!
By following the five step process, you're pretty much creating an extra deduction against your rental income. You may or may not end up having a net rental income. Regardless, you would still be required to report your rental income.
If you only focus on the $600 savings in the first year, you're correct. If you focus on paying off your non-deductible primary residence mortgage in 10 years or less, maybe it is a bit different perspective. Plus, I already illustrated the entire process here. Feel free to look into it further and apply this to your own situation. I don't think I can make any money off you if you just apply this process yourself.
This video is completed misleading. First, the numbers are wrong. See column O. if you have rental income you probably also have a debt associated with it. So your interest on that debt is already tax deductible. Applying this strategy makes money only for your accountant. Not you.
You can use your HELOC for anything used to create income and then deduct the HELOC interest.... Doesn't have to be rental income, you could use it to buy dividend paying stocks instead for example
Convoluted process seems the rental property is debt free. If that is the case take out a mortgage on the rental property. Use this to pay down your residential mortgage. Mortgage interest on the rental property is 100% deductible.
And your renter stop giving you rent, you go to LTB while juggling mortgage interest , rental property mortgage interest and HELOC interest. Good luck! 😢
When it comes to a CRA review of your interest claim believe me its not as straight forward as you make it sound which is why income tax act does not allow you to borrow against your investment property to payoff personal debt what you're doing is pretty similar you're taking the investment income and paying off personal mortgage then reborrowing to pay investment property expenses any in-depth review by the CRA will disallow your claim ...
Thanks for your comment. Have you gone through an audit with interest deductibility? Curious if you have seen a court case with the in-depth review that you have mentioned.
This is simply converting the non-deductible home mortgage interest to deductible mortgage interest. If you still have net income after deducting the additional mortgage interest, kudos to you. Most people don't. Your total overall debt amount is the same whether you adopt this five step process or not. I'm not a real estate expert. Just out here sharing ideas. Happy to hear yours.
This is horrible advice for Canadians. Inflation is coming down but rates are higher than the inflation rate. So why would I want to be in debt and increase debt while I can make more in stocks or mutuals
You're supposed to carry the balance in HELOC and then at that point the entire interest expense is deductible. And you can choose to apply your monthly mortgage payment to your HELOC to pay it down.
So many assumptions we are making here. 1. Our interest rate is 2.94%. Which very few people now a days have it and may be less than 5% of population would have that rate by end of 2026. 2. Our financial and life situations will stay EXACTLY the same for next 5 years. 3. Our renters are paying rent on time. Only 37% of renters are paying rent on time now a days according to LTB data in GTA. So essentially 1 out of 3 renters are not paying rent and case goes to LTB. 4. You need to file taxes through accountant to do all this vs filing your taxes by ourselves for most of us. Which incur at least 1000 CAD a year. You can do tax filing for free by yourself if you do nothing so we need to spend $5000 by end of 5 years. So now for $3000 savings over next 5 years, who is willing to get into this and spend time, energy and incur stress. This is good who files taxes by themselves such as accountants and people who own 5-6 rental properties. I would invest 48k in gold and get more return than this. I consistently keep investing in physical gold since 2004 and returns are beating S&P 500 by remarkable margin. And if you are smart enough to sell gold wisely then there won’t be taxes at all. BTW, many years back. I created HELOC product while working in one of the big 5 banks at higher position and internally we always discussed that how bad that product is for users and how best it is for the bank. The biggest culprit of HELOC goes wrong is your life situations which normally never stays same over the period of time and that’s where banks always win.
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I have rental property . Never claimed mortgage as rental expense. Should I be allowed to do so?
Great video Cherry! Way too many Canadians unfortunately don’t put this strategy to work. You can have the best of both worlds. Tax deductible debt and the ability to sell your primary residence without paying capital gains tax. It’s a win win. Keep up with the great content.
Absolutely! Thanks
Absolutely!
I'm new in Canada and glad to have found your channel. This was very insightful. I'd appreciate if you could make videos on the following:
1. Which provinces are most tax efficient for first time home buyers?
2. Which type of RE has appreciated in value the most over last 20 years?
3. For first time home buyers using FHSA & RRSP to buy their home, what are the things we need to consider before first purchase and how can we lower taxable income?
primary residence isnt taxable this doesnt matter which province you are on
it completely depends, even in the same city two very near neighborhoods have had hugely different results on the same asset class let alone condo, vs. townhouse, vs. single family house. Also past results do nothing to tell us about the future.
basically you are asking what to buy for the best returns. No one can tell you oh buy this. Life just isnt that simple.
Hi
You started off with primary residence and then talked about paying off rental property expenses using line of credit? What if someone does not have a rental property?
Hello Cherry, thanks for the video.. can you apply this method using your basement suite as a the rental income? Thanks
Thank you so much for making this video. I was the one who posted the question on your 5-step video from two years ago. Thanks again.
Hi Cherry, Correction, there is no savings in the example that you show.
the values on Column O are incorrect. Please check.
11:51 you mention that at Year 3, "the line of credit balance would have been increased to $144,000... the additional line of credit interest that you would have to pay is about $9,000 by now, cumulatively, all three 3 years combined." This is incorrect.
The cumulative LOC interest by end of Year 3 should be $16,539, not $9,089 (see cell O10).
And so the 5 year cumulative after tax interest on the LOC should be $27,267, not $9,745 (see cell Q12). This means that in this example of a 2.94% mortgage and 7.45% LOC, there is, unfortunately, a loss (no savings) by doing this.
Agree, I didn't go over the details on her numbers, but generally it is just swapping the interest from a lower mortgage interest to a higher HELOC interest and then save on the tax deduction. So if the HELOC interest is 7.45%, tax saving is 40%, net interest is (7.45% * (1 - 40%)) = 4.47% which is higher than your mortgage interest (2.94%), then you're losing money.
It appears to be the average interest assuming semi-monthly and monthly payments ... not sure why but if we check the interest calculation of semi-monthly (~$1146) + monthly (~$2748) / 2 = ~$1947, which is very close to their assumptions ... this pattern continues for each year.
this makes no sense to me but I like your videos. I would like to pay off the mortgage not getting more debt to get the tax deduction.
Hi Cherry, thanks for the awesome video. One Question, if I didn’t have a rental property but I had another business could this method still work. And if not why?
Hi Cherry, thanks for this video! Just to clarify If I collected Rental Income say $4K in a month and I pre-pay my Principal Residence Mortgage then I drawn out the same $4K from my set up HELOC & used it to pay all my Rental Expenses,, then this $4K will become Tax Deductible in full?
Great video Cherry!
Glad you like it
Cherry can you pls discuss how long you can rent your primary residence to avoid capital gains taxes? If I have a condo and I rent it out to tenant, and rent another condo myself, can I still claim capital gain for primary residence
Unfortunately this analysis is incorrect because it compares the cumulative int savings on the mortgage to the annual after-tax int on the LOC. So it is comparing a stock with a flow. Compare apples to apples and you'll see this is costing you way more money, and the logic is pretty simple: if the after-tax return on the money borrowed from the LOC is less than the after-tax int cost, you are losing money, and that's exactly what's happening here.
E.g., for year 4, you are comparing the cumulative non-deduct. int saved (11.4k) to the annual after-tax cost of the LOC (7.6k) and saying you've saved 3.8k. That's not how math works. The LOC is costing 7.6 in year 4 alone, but the 11.4k in int saved on the morgage is for years 1-4 combined.
This, the smith manoeuvre, infininite banking and velocity banking although different products are all pitched in this same way. Makes sense for some with alot of cash but I don't see how this particular one works especially with rates higher now.
@@czapskibusinessgroup Yeah but not quite. This particular video was not pitched the same way. It was pitched in a way that's inconsistent with basic math. I've brought this to her attention in another comment that she replied to but as far as I can tell she has never made a correction
@@arnoldvosloo220agreed. I just commented again about this. The values on column O of the spreadsheet are wrong! Means the LOC interest cost is understated. If corrected, there is no savings.
It's unfortunate that a misrepresented video is getting more views and she doesn't bother to correct or at least reply.
@@vlog0I find it bothersome too. As an unlightened viewer, I would like her to answer and confirm or disprove the correction. Not responding undermines her credibility.
Thanks! This helps UA-camrs a lot. Maybe a good topic to cover? :)
Can you apply this method and use haloc to pay the downpayment on the rental house?
Great video, but is there a way for a person who does not have a rental property or income, just the primary residence?
Cherry, thank you for the great video, i have 1 QUESTION - if i am borrowing 48k from the LOC to pay for rental property expenses I would need to have this much in the expenses - am i able to use these LOC borrowed funds for my mortgage payments and maintenance payments on the rental property or these do not qualify as expenses?
How you are adding rental income as Line of Credit and charging interest? Please explain
Hi Cherry, really enjoyed the video! For 'Additional LOC interest', shouldn't that year 1 number be $3,576 (based on $48,000 x 7.45% interest)?
Hi Cherry,
Thank you for the great information! Is this assuming that the rental property is owned personally? How will it work if the rental property is owned by a corp ad the primary residence is owned personally? Thank you
I think I did get into answering that toward the end of the video.
Hi Cherry,
Great video. Would both spouses be able to deduct the mortgage interest off both of their incomes or can only one spouse do this?
Great video Cherry! Can we use the investment amount withdrawn from the HELOC to invest in a foreign country? Example: buying investment property but outside Canada?
Cherry, is it not better to use Heloc for down payment for your rental property. This would help you tax deductible?
Cherry your videos are super informative. Thank you. Just one question if you buy an investment property from a builder and close it. Sell the property after 7 months. Do you have to pay capital gain income tax on profit or business tax on 100 percent of income ?
Generally speaking if you make money in canada, you're subject to tax. Unless you lived in the property as your primary residence, in that case you might have some leeway.
What if you don't have a rental expense? Are there other methods to minimize the interest?
Thank you for your rich informative articles. I am in need of an accountant. How can you help?
Please reach us at realestatetaxtips.ca/contact-us/ and my team can guide you with the next steps. Thanks
I need help understanding the missing parts of this. You assume making $4,000 off a rental property, but what if I need to be cash-positive after paying condo fees and a second mortgage? Do you know if this still applies?
Thanks Cherry! This is excellent. I've really been enjoying these videos. A question. If someone takes HELOC from their primary home, and use it as a down payment to buy a rental property, is the interest accrued on the HELOC annually tax deductible, since it's all part of the investment?
As long as the money is used to generate income (such as rental income, interest income, business income, etc.) then you should be able to deduct it.
@@RealEstateTaxTipsthanks Cherry! Very helpful.
@@RealEstateTaxTipsI have so many questions and I have till April to make a sound decision around these. Do you provide a free consultation? btw I’m located in Calgary Alberta
@@RealEstateTaxTipsif that heloc use for investment, stock. Can the interest would be deductible at the end of year. Thanks
Great video Cherry! They must also remember not to use that line of credit for non-investment purchases correct? From what I hear, that would create a bit of a nightmare on the accounting side.
Can a Sbloc be use instead of a Heloc . And is there a limit to the lost that can be declare on a yearly basis ? Considering +- 50k rental income and a w-2 income of 200k a year . Exemple having a 100k “cost of interest “ and 50k rental receipts?
Does this method work the same way with a CELOC?
Can you please share the link for your previous video you keep referring to in your current video ?
ua-cam.com/video/JBKI7CXwH7Y/v-deo.html&lc=UgxRwPenUfyRS0qzhvZ4AaABAg
Thanks Cherry! Can you use the funds from the HELOC and buy a private REIT that produces 100% ROC distributions, and still be tax-deductible? Would the RoC still be considered as the acceptable investment income?
Generally speaking the amount should be taxable as interest income/dividend income/rental income, etc. If there's no reasonable of expectation on receiving those income, CRA can potentially challenge your deductibility
AMAZING analysis!!!!!! Can I buy this spreadsheet? I’d like to plug-in my own rates!
I wish the spreadsheet is some properly formulated spreadsheet, unfortunately it's a lot of manual labour behind the scene and it is linked to multiple spreadsheets.
Thank you though.
Great information and right to the point. Can you share the Excel sheet. Also can you provide recommendations to keep log of all these LOC transaction separate from other transactions so that deductions can be validated in case of a Tax review?
Additionally you used current high interest rate 7.x in this video and we are still saving money. That tells how effective this strategy would be, once interest rates will start going down.
The excel document is something we provide our clients with, as for the Smith Maneuver I would recommend you schedule a meeting with my team to review the process and how it can benefit you by making your home mortgage interest a deduction
Hi Cherry, I have a question about the investment vehicle. In my case if choose to invest the withdrawn HELOC $ into a fund/stocks that pays me dividends and capital gains. Would I be taxed differently (i.e no expenses, no property taxes, no insurance etc) just trading commisions. Thank you
Any borrowing made to generate income is tax deductible. If your primary goal is to get capital gains then you don’t get tax deductions. All investment must be in non registered accounts only for tax deductions. You don’t get tax deduction if you borrow and invest in TFSA or RRSP.
I was familiar with the Smith maneuver but more towards using the money to invest in stocks etc which you can never rely on.
My question is, once you are done paying the mortgage on your house, you will still be left with the HELOC debt, wont you?
What then?
Also, you suggest this to be along the 5 years of the term. But what exactly do you mean by that, should be started with the beginning of term?
What happens at the end of the term?
You're right. At the end, you would have paid down the entire home mortgage, but left with HELOC debt. At which time, you would then use your monthly mortgage payment toward your home to pay down your HELOC debt - if that's what you want to do - depending on your investment your portfolio at that time.
Now...I am mentioning five year term - primarily because majority of our mortgages have five year term. You are required to renew with new terms (new interest rate and new amortization period, etc.) regardless.
@@RealEstateTaxTips but then, the Excel spreadsheet does not take that into consideration - the debt that we now have on the HELOC.
What do you mean if that is what you choose to do, what other options do I have ? :)
@@1elasticman Use it to continue to offset personal income come tax season
in US, there is no capital gain tax in selling your house as long as its your primary residence for 2 or more years prior.
also in US, aside from tax shelter, theres 30yr fixed interest. meaning your first month mortgage payment will be the same for the life of your home loan.
This is interesting, but the situation should be more complicated than this. For example, even though you are left with less debt, but interest on the debt is a weight of mortgage rate and LOC rate. We can look at your first example, if you don’t do the steps, you are left with a higher debt, 665847, but the rate for this debt is 2.94%. However, if you are doing the steps, 407766 is with rate 2.94%, the remaining 240000 you have to pay 7.45% as the rate. For the second example, when you renew your mortgage, your mortgage can go down a lot, but the LOC rate may not go down. So again, you are stuck with higher interest rate.
This is really interesting. I just discovered your channel and went back to watch that video from 2 years ago. I don't have any rental properties and don't intend to invest in any. However, I invest in dividend stocks, including many non-Canadian dividend stocks, to generate a (somewhat) steady income stream. For non-Canadian dividend (which is about 70% in my dividend income stream now), the dividend is taxed simply as ordinary income. Is there a way to use HELOC on my primary residence to save tax on foreign dividend income or even interest I receive from bond or savings accounts/GIC/term deposits?
Great strategy. You can definitely use the same strategy to apply it against non-Canadian dividend received also against interest income.
@@RealEstateTaxTips Thanks for the quick response! A few follow-up questions: (1) you mentioned in Step 2 that we should arrange to have the rental income going directly into the HELOC account (presumably to show to CRA that the income is to repay the loan so the loan is indeed for the investment?), however, for dividend, that is not possible since the dividend would be paid into the brokerage account where the stock is being held. To show the linkage, would it be sufficient for CRA if I regularly (say monthly) and manually move the dividend paid from the brokerage cash account into the HELOC account to repay the HELOC amount? (2) Since there is no maintenance cost for stocks, in order to show CRA that the HELOC loan is used to fund the investment of the stock, is it that I need to manually and explicitly take the money (same amount as the stock purchase) out of my HELOC account and move it into the brokerage cash account whenever I buy a stock? (3) Does this concept also apply to a personal loan or personal line of credit? e.g. if I take money out of a personal line of credit and manually transfer that into a brokerage cash account to buy stocks (or even GIC), and every time there is a dividend payment (or when I sell the stock or when the GIC matures), I transfer the amount back into the personal line of credit, then the interests incurred on the personal line of credit can be used to reduce tax from the dividend and interest? Sorry for asking these detailed questions here, but you have really introduced an interesting concept here so really want to know how far I can push this.
@@raylee17The main thing is to have a paper trail of the funds from the "investment" HELOC go directly into your investment brokerage so that it's clear that the funds are indeed funding an investment and not for personal use. This way the interest from the investment HELOC can be deductible. As for collected dividends, it doesn't matter where it goes afterwards from a tax perspective however, you do want it to go into your primary mortgage and not back into your investment HELOC so you can reduce your outstanding balance of your primary mortgage in which the interest is non deductible. This will also give you more borrowing amount in your investment HELOC to invest further if you wanted to grow your portfolio faster.
Cherry why not give downtown payment for rental from HELOC so you are able to claim interest from that in your taxes against ur rental property income?
Can you use rental properties in the USA for this tax strategy or is it just Canadian? Thanks.
Assuming you're a Canadian tax resident and you own properties in the USA in your personal name - and you intend to apply this process on your home in Canada, then it will work... it is a bit more work given that the rent received is in USD.
Thanks a lot Cherry! I'm curious that if my rental property with a mortgage that is already suffer a high interest as of today (which is a high expense and leaves almost zero net income or loss of the rental property). Is it allowed and is it worth to use the above method to generate a even greater loss to deduct the employment income and other income (interest, stock, etc.)?
I think one must be very careful using this to create losses or increasing the rental loss which you then use to offset personal taxes. The CRA will be watching these "maneuvers" closely when many, many more landlords in Canada are claiming losses this year due to high variable interest rates. While this "cash damming" approach seems theoretically legal on the surface, there are indicators that CRA could disallow these interest loss deductions since the interest claimed isn't used to generate income/profit if it's already clear the rental is in a loss. The "test" for CRA for interest deductibility is that the investment should have a reasonable expectation to earn profit/income, isn't it? Would love to hear Cherry's opinion and the opinion of other investors that have used this method - seems very risky right now. Does CRA have a case to disallow such deductions if they increase the deductible loss on a rental investment? Any tax lawyers in this group? Thanks.
While in theory the strategy is legit, it does have the downside, like I mentioned in the video - that you truly do have a short-term cash flow negative situation. If you are already in a negative cash flow situation, I don't know if it is smart to make it worse...
Hi Cherry great illustration but the principal portion of the mortgage payment for the rental property is not tax deductible so how does this work when we are trying to pay the entire mortgage payment with the HELOC also what do you do when you dont have any room to borrow from your HELOC as you can only draw 80% from your principal property, lastly not sure if you allowed to include and add your last years HELOC interest rate to your current year as you have already claimed it, Hope it make sense
The purpose of doing this is to make the mortgage interest on your principal residence a deduction on the rental income, normally the interest on your principal residence is not deducted anywhere against your income, this makes it possible. For a further explanation of how this applies to your situation I recommend you schedule a call with my team.
I’m renting out my primary home for 5500 a month, I know I will be paying tax on the income. What can I write off to offset my income tax?
ua-cam.com/video/vZFJFOf5o00/v-deo.html
You can watch the above video - and the only difference is that you can only deduct the expenses that are related to the rental portion, usually allocated based on square footage.
I can’t find the video with the 5 step. Can you please give me the link? Thank you
I think you are referring to this video : ua-cam.com/video/JBKI7CXwH7Y/v-deo.html
@@RealEstateTaxTips yes yes. Thank you 🥰
Great content
Thanks
Would this process be as savvy without the rental property and associated income?
Absolutely - however, it goes back to your investment return. I will keep this in mind for future video production with dividend income/business income/interest income.
What about rates being higher now (4-6%) fixed and variable rates are more. You're having less paydown on your principal and offsetting to the credit line which is also high. Does this really work in this type of environment ?
How would this process work for business income?
Well done on this! A great example of the smith maneuver. Are you able to share your excel sheet with your followers? It would be great run though different scenarios. Ex - etf investing and getting various levels of yearly returns, different marginal tax rates, etc. thanks again. I’ll share with my friends and colleagues.
Wish I can. My excel is full of links to other workbook and much of it is manual work.
@@RealEstateTaxTips thanks for the response. Keep up the great work with the channel. It’s an invaluable resource for many.
Hi there!! Great information. Going to watch the 5 steps now! Question, Does this work if your rental is an addition to your primary residence (airbnb/rental). Spending $300k from HELOC to build a 2 bed/2bath above the garage. Plan to rent it out from spring 2024. expect about $50k income.
It would work just fine as well. All the best
I’m your subscriber now , nice to know all the options, regarding principal mortgage , to tax deductible machine, specially I have a rental property outside the province pls. Help me how and how to obtain such thing
Same process can be applied as long as you are earning rental income from your investment property.
Can you share the working excel sheet to put our numbers and see the real savings
It would be helpful to explain at the beginning what is the 5 step process.
You can watch the 5 step process here: ua-cam.com/video/JBKI7CXwH7Y/v-deo.html
If you want to reduce your rental income and the applicable tax to it, can you not apply mortgage interest as a finance charge that will reduce your rental
Income?
If I refinance my primary home and use the money for down payment of rental property , will that be tax deductible?
Yes it would be deductible once you start earning rental income. I would recommend you schedule a meeting with my team to fully understand your circumstances and provide you the correct guidance for the treatment of the interest you are paying.
What is the interest on the line of credit?
IS THIS THE SMITH MANOEUVER?
Yes
Pretty much.
Is it reasonable to assume that LOC interest will stay fixed for 5 years for the calculation? Since it is variable
You're absolutely right. For the purpose of our analysis, at least the variable mortgage rate vs the variable rate on LOC, it would make sense to fix it at one point in time.
Again, whether the rate will go down or not really goes back to what your outlook is. Hence this can be a very personalized analysis as well.
Question: This has nothing to do with a refinance right? This would be only if you had that particular re-advanceable mortgage set up so that you can opt in for establishing a HELOC right?
The process doesn't have anything to do with refinance. But eventually you might want to convert your HELOC balance to a mortgage and at that point it might have something to do with refinancing.
Could you roll the HELOC into a mortgage component at a lower interest rate and retain the deductibility?
Yes, but documentation here is the key. So you need to be able to document the use, so keep all the records, bank transfer, etc.
Hi Cherry, are you able to share the this spreadsheet?
Wish I can. It isn't some fancy spreadsheet - but rather it's a manual one that linked to multiple spreadsheets.
Not sure but just want to confirm if this only applies if you have rental properties?
This can also applies (the five step process) to business income, dividend income and interest income - assuming that they are earned in your personal name. If they are earned in the corporation's name, that's a little more complicated. if the income is earned in registered accounts (RRSPs or TFSAs) then this process doesn't apply
😢 i am confused... but this does gives an idea so will have to do some more research.
Ok, but what about comparing these two examples with a third option of just applying the $48K rental income directly to principal prepayment each year ?
Maybe I'm not understanding your question clearly, I'm applying the $48K to principal repayment of the primary residence ($4K per month).
Give an example without rental property because in Ontario the LTB allows tenant to live rent free for at least a year and there is no cash flow for landlord.
Yep, that's definitely a flaw in our system.
However, during the year of receiving not rent, you're still eligible for the deductions. It's sad. It also goes to show that diversification in our investment strategies is important.
Just to add to this, if your tenant didn’t pay for a year, you would pay all rental expenses with your HELOC b/c you would have to since no rent coming in (just as you would if you did have rent coming in with this 5-step technique). And then you would deduct the interest on the HELOC as a rental expense as Cherry said.
Hi Cherry, would it be possible to share the excel file that you have? I tried to replicate your numbers to understand, but I couldn't get to some of the numbers you did.
For example, how did you get 1,937 of additional LOC Interest in year 1? I thought it might have been 48,000 * 7.45% = 3,576.
Many thanks!
Unfortunately my spreadsheet is linked to multiple spreadsheets. It is a lot in my brain, rather than on the spreadsheet.
Specifically the year 1 is calculated on a monthly basis - given that the $4K rent received is being done on a monthly basis.
Let's say I did this for 15 years and my LOC interest cost became greater than my investment income, will that be a problem? Won't the CRA be like, hey, your investment income can't even cover your interest, why are you doing this?
Secondly, if the above isn't a problem, then can the interest expense be deducted against my normal income?
Thanks!
Interest deductibility is based on the use of borrowed funds. If you're incurring a net loss, loss can be used to offset against other income.
But it’s a good question. How many years can you have a rental loss without the CRA asking questions? With the added expense of the HELOC interest with this 5-step method, it is more likely to be a rental loss.
With your example, are you making the assumption that your rental income of $48K is also the exact amount of the yearly expenses of the rental property? What if the expenses are less and your rental income is cashflowing positive? In that situation the HELOC balance shouldn't increase by $48K annually. Will this example still show enough difference in the first example when the rental property is cashflowing positive?
Great comment. Absolutely right. I'm taking the assumption that the expenses are more or less the same amount as what we receive.
To answer your question, it really goes back to what your expense to rent income ratio. Maybe it will be worthwhile doing it maybe it won't. Very specific
Can the heloc interest be deducted against my salary income ? Or just investment returns and rental earnings
It's deductible towards the total income i.e. Investment income and your salary income.
You have to use the borrowed funds to earn investment income/rental income/business income for it to be deductible. If you have higher interest cost compared to the investment income/rental income/business income you received, you're still eligible for a deduction. The excess can be used to offset against your salary income.
The math assumes a $4k/month rental income. Where in Canada is rent that high and what is the type of property you're renting?
A duplex outside of Toronto area, a 2 bedroom condo in Toronto, a unit in Toronto (they can be higher than $4K), student rental near McMaster...
@@RealEstateTaxTips thank you. I'd be very interested to see a working example of buying a rental property in a less expensive market and where the income is about half that. Does it still work out?
But you can create a incorporation and put the property in that. Wouldn't it be better that way .
That's more complicated - but yes, in some cases, it can be a better choice.
On the flip side, because the government just announced that they're going to raise the capital gain inclusion rate as of June 25 and onwards, it might not be a smart idea to put all your properties in the corporation... based on the current information that we know...
I am owner house but no bank wants to give me equity loan because I am only income ; not enough to get equity..
How it works for me?
Thanks
Sorry to hear this. The amount you are borrowing in your personal name is tied directly to your income.
So I have a some rental properties and my accountant has warned me against this for a simple double dip tax issue. The mortgage on my rental property is tax deductible. If I take the rental income put it on my primary mortgage, then take the HELOC space created out to pay for the rental property mortgage and try to deduct that again, I've made the same deduction twice. I could be missing something but I would be careful with this folks.
You use rental income to prepay your primary mortgage. Then use the created heloc equity to pay your mortgage. Your rental income is taxed personally or through your corp. there isn’t double dipping here.
In the intro to your book you say "bumped". Do you mean "bummed"?
English is my second language - I don't recall what I said in my book. Excuse my mistakes at times..
@@RealEstateTaxTips No worries, it was from this section:
"I felt a bit bumped because I waived my right to apply. But well, I could always get into those Big Five firms later."
I think you are trying to use the expression "bummed out" meaning: "sad". Just an idiom, hard to pick up on this stuff as an ESL speaker, and spellcheck many have even changed "bummed" to "bumped", because "bummed" is so colloquial.
oh, and also "but oh well" instead of "but well"
Smith maneuver
very smart girl!
Great video
There are new rules coming by OSFI regarding re advaceable mortgage
New rule is keep doing what you are doing investors
but average joe
No more credit to you sir! Stop buying stuff cuz you are adding to demand
The rules are written by non broke people
Usually when you invest it’s because you have an excess of funds
how can one get this spreadsheet? :)
It isn't a fancy spreadsheet that has high tech forumla. It's a spreadsheet that's very manual and basic. Even if I share it with you, it is linked to multiple different spreadsheets that no one else understands.
I wish my excel skill is a bit better but sadly, my excel skill is just enough to get by.
2.94%
Cummulative int Balance
y1 21,774 729,375
y2 42,932 708,135
y3 63,458 686,262
y4 83,333 663,738
y5 102,536 640,542 mortgage calculator give me 640K of balance after 5 years with the Option 1 - Done nothing. Am I doing something wrong?
I wish i see your video 5 years ago.
Hi there can you please send me the 5 steps. I'm new yo the channel
Hi, you can my watch my video on 5 steps here: ua-cam.com/video/JBKI7CXwH7Y/v-deo.htmlsi=0Sh9nRThjhZCfOUB. Thanks
Frankly I didn’t watch the video. But from the title. I should buy an over-leveraged priced house with 25 ( some cases 90) years mortgage and 5% interest to save a dime. Wow nice plan i have never thought or heard someone thought about it.
Hey, thanks for providing your comment. If you haven't watched the video, it's kinda hard to respond to you. When you get the time to watch the video, feel free to leave a comment.
I work with many real estate investors and they already own their own homes to begin with. I'm just sharing a process that they can use to create bigger deduction. The debt you owe before applying the process and after you apply this process is exactly the same.
I've asked numerous times for a home equity line. Refused every time for different reasons. Every conversation lead to the bank pitching a loan. I refused the loan because I have equity in my home. Now that interest rate moved another 25 points, this is not feasible. I'm locked into an expense without options other than selling my home. Sour taste in my mouth. Then yesterday I was informed that home equity line of credit is not something available to owners since 2018. What now?
I hear your frustration - I'm no mortgage specialist and can only share my personal experience with mortgages. A few years back, they did take away the HELOC up to 80% of LTV. However, they would allow you to borrow against it as a mortgage up to 80% LTV.
In the last few years, I have seen variations of HELOC and mortgage up to 80% through my clients. HELOC is always available, but it is just the terms could be different.
It's worthwhile speaking to mortgage agents or different bank to get a different perspective.
Good luck!
@@RealEstateTaxTips
Essentially, means equity means nothing to the owner.
What abt the tax on rental income ?
By following the five step process, you're pretty much creating an extra deduction against your rental income. You may or may not end up having a net rental income. Regardless, you would still be required to report your rental income.
For all of this work to save 600bux...but ur accounting take all that money from you to do all that works ...holly craps
If you only focus on the $600 savings in the first year, you're correct. If you focus on paying off your non-deductible primary residence mortgage in 10 years or less, maybe it is a bit different perspective.
Plus, I already illustrated the entire process here. Feel free to look into it further and apply this to your own situation. I don't think I can make any money off you if you just apply this process yourself.
This video is completed misleading. First, the numbers are wrong. See column O. if you have rental income you probably also have a debt associated with it. So your interest on that debt is already tax deductible. Applying this strategy makes money only for your accountant. Not you.
Why do you say interest in the debt ie mortgage is non-taxable?
Generally speaking, imagine if it was tax deductible. Welcome to Canada were people get taxes like crazy
Really? How HELOC is connected to a rental unit? Can HELOC be used any other way to get tax deductible?
You can use your HELOC for anything used to create income and then deduct the HELOC interest.... Doesn't have to be rental income, you could use it to buy dividend paying stocks instead for example
Convoluted process seems the rental property is debt free. If that is the case take out a mortgage on the rental property. Use this to pay down your residential mortgage. Mortgage interest on the rental property is 100% deductible.
False. If you refinance the rental to pay off your primary residence, this is not tax deductible.
100%!
Rental property is not debt free.
@@tutorknightscan you please elaborate. Interesting
And your renter stop giving you rent, you go to LTB while juggling mortgage interest , rental property mortgage interest and HELOC interest. Good luck! 😢
Make sense, if your property is overinflated turn down your mortgage. If you're a realtor find jail now. Scammers
When it comes to a CRA review of your interest claim believe me its not as straight forward as you make it sound which is why income tax act does not allow you to borrow against your investment property to payoff personal debt what you're doing is pretty similar you're taking the investment income and paying off personal mortgage then reborrowing to pay investment property expenses any in-depth review by the CRA will disallow your claim ...
Thanks for your comment. Have you gone through an audit with interest deductibility? Curious if you have seen a court case with the in-depth review that you have mentioned.
This only makes sense if you are taxed.
You still pay tax on the I come you earn lol I love all these so called "real estate experts"
This is simply converting the non-deductible home mortgage interest to deductible mortgage interest. If you still have net income after deducting the additional mortgage interest, kudos to you. Most people don't.
Your total overall debt amount is the same whether you adopt this five step process or not. I'm not a real estate expert. Just out here sharing ideas. Happy to hear yours.
This is horrible advice for Canadians. Inflation is coming down but rates are higher than the inflation rate. So why would I want to be in debt and increase debt while I can make more in stocks or mutuals
This makes no sense to me
All this is, is getting more indebted, while saving on tax. If this gravy train kept going eventually you’d owe the house price on the loc.
You're supposed to carry the balance in HELOC and then at that point the entire interest expense is deductible. And you can choose to apply your monthly mortgage payment to your HELOC to pay it down.
this is just a process to help you create more tax deduction if you choose to invest.
Is this lime the Kwak Brothers? Like Accelerated banking?
So many assumptions we are making here.
1. Our interest rate is 2.94%. Which very few people now a days have it and may be less than 5% of population would have that rate by end of 2026.
2. Our financial and life situations will stay EXACTLY the same for next 5 years.
3. Our renters are paying rent on time. Only 37% of renters are paying rent on time now a days according to LTB data in GTA. So essentially 1 out of 3 renters are not paying rent and case goes to LTB.
4. You need to file taxes through accountant to do all this vs filing your taxes by ourselves for most of us. Which incur at least 1000 CAD a year. You can do tax filing for free by yourself if you do nothing so we need to spend $5000 by end of 5 years.
So now for $3000 savings over next 5 years, who is willing to get into this and spend time, energy and incur stress.
This is good who files taxes by themselves such as accountants and people who own 5-6 rental properties. I would invest 48k in gold and get more return than this. I consistently keep investing in physical gold since 2004 and returns are beating S&P 500 by remarkable margin. And if you are smart enough to sell gold wisely then there won’t be taxes at all.
BTW, many years back. I created HELOC product while working in one of the big 5 banks at higher position and internally we always discussed that how bad that product is for users and how best it is for the bank. The biggest culprit of HELOC goes wrong is your life situations which normally never stays same over the period of time and that’s where banks always win.
You lost me…
No sense
.your fake
Thank you.
Cherry, is it not better to use Heloc for down payment for your rental property. This would help you tax deductible?