Comments on: Should Jason Sell his Home and Rent Instead?

By: Dave

Dave — Tue, 29 Jan 2008 04:49:13 +0000

I’m pretty sure that in Canada you can’t deduct anything on a primary residence but on rental property you can (because it’s for the purposes of earning income).

As for renters, rent and property tax are tax credits in Ontario, which means it’s not a huge rebate…and rent paid has no tax consequences in BC. So you are right, rent is basically not deductible, and neither are homes (unless it’s a rental).

By: TheWalrus

TheWalrus — Tue, 29 Jan 2008 03:14:24 +0000

I couldn’t say for sure because I live in the USA. For my personal residence I can write off the mortgage interest. For my rental I can write off virtually every expense there is, including the gas mileage I use to check up on the property.

I did a quick Google search and I saw a lot of forums and blogs talking about what you can and can’t write off in Canada. It seems like you can write off interest from your mortgage on a rental from the responses I was reading but I wasn’t able to find the law regarding personal residences.

If you know of a good source, I’m all ears.

By: Dave

Dave — Tue, 29 Jan 2008 02:53:22 +0000

Just to clarify though, unless we’re talking about investment property/rental property “While you own a home you can write off interest” is definitely not true in Canada, right?

By: TheWalrus

TheWalrus — Tue, 29 Jan 2008 01:22:49 +0000

It doesn’t turn my tax idea on its head as I said “unless law is different in Vancouver (I believe thats where this is taking place)”. I’m not sure of Canadian law but I have a rental house and my personal residence south of the border and each has different things you can write off. It’s important to look into all of that, and that’s all i was trying to point out. Regardless, this is a good topic and I know a lot of people who are considering the same thing.

By: Dave

Dave — Thu, 24 Jan 2008 05:04:09 +0000

If Jason decides to rent for 3 years before getting back into the market he can take his $70k and park it somewhere and make some interest, hopefully offsetting the closing costs and other fees. Actually he can park all the equity that was in his home in low-risk investments. I would assume his monthly rent will be cheaper than his mortgage payments were before (in Vancouver this is pretty much a given right now).

By: Dave

Dave — Thu, 24 Jan 2008 05:01:15 +0000

I’m pretty sure you can’t write off interest on a home in Canada unles you bought it for the purposes of earning income or running a business. In fact isn’t the Smith Manoevre designed to get around this?

You definitely can’t deduct renting (except in Ontario you can, at least we did it when we were students in Ontario). So the “Jason” in Garth’s blog article lives in Ontario where he can deduct his rent but not any part of his mortgage payment. So that turns your tax ideas on its head a bit.
You’re right he’s got to consider closing costs and all that. When he said $70k gain, we don’t know if that was gross or net.

A high school friend just sold a bungalow with a $200,000 gain and instead upgraded to a new house. I would have found a nicer (but cheaper) house to rent instead and wait for the market to cool down.

By: TheWalrus

TheWalrus — Thu, 24 Jan 2008 01:47:22 +0000

I disagree with some of this. It really depends on the cost of the house and how much closing costs are when the townhouse is sold and re-bought. For instance if the house is worth $200,000 and the commission to sell is 6%, you can immediately chop off $12,000 from that. You pay other costs as well (inspection, lawyer, etc). When you repurchase in a few years, you’ll pay another set of closing costs. While you own a home you can write off interest. You can’t do that while renting, unless law is different in Vancouver (I believe thats where this is taking place).

I still think you can come out of this with some extra cash, but not as much as you are hoping for.

By: Dave

Dave — Thu, 10 Jan 2008 16:51:53 +0000

David, has a housing downturn even started? It hasn’t in Vancouver, maybe it has in other parts of Canada. I had heard that prices in Alberta had started to come down. But anyways I don’t follow too closely.

Why do you think it’s foolish? Because you think his rent will be too high? Have you considered the $70k capital gain? Why was a year ago different?

By: David

David — Thu, 10 Jan 2008 14:20:15 +0000

I can’t imagine there being any equity in a home bought 3 years ago.

Rents typically spike near the end of a housing downturn, which drives buyers back into the market.

At this point, I think it is a foolish decision. It could have worked well a year ago though.

By: Financial Jungle

Financial Jungle — Tue, 08 Jan 2008 03:57:36 +0000

Very well said! I turned from an owner to a renter about 13 months ago and haven’t looked back since. And why should I? My “earnings” are up $9,000 in 2007 just because of this switch.

Home is as much as investment as stocks. For instance, I don’t think a rationale person would pay a $1 million home that rents for $1000/month. i.e. 1.2% rent yield. Yuck!!!

Why not buy a basket of conservative stocks yielding 3%, pay the 1.2% in rents, and reinvest the rest of 1.8% back to the portfolio? Rents probably hike 4% annually, but time and time again, most dividend stocks go up 8-10% per year. So you get a higher dividend yield AND higher dividend growth.