[ASLplease]

bootlegga bootlegga:

andyt andyt:

I don't follow your math boots. Rental income is taxed at the same rate as personal income - so you're saying you wouldn't take a raise at work because you have to pay taxes on it? I don't see how you can get a tax deduction worth thousands when as you say, the loss just saves you the tax you would have had to pay on your income. I think you are mixing up your rental income with your tax deduction here.

I know it sounds crazy, but if you have a mortgage, 100% of the interest is a tax deduction, so you can wind up getting about a $10,000 tax deduction while only spending $1500-$2000 out of pocket. And in the first fives years of a mortgage, almost your entire monthly payment goes to interest, not principal (the first year in my condo I paid over $15000, but only accrued $1000 in equity). If you're in a high enough tax bracket (like many owners of rental properties are), then the $10000 tax write-off saves you more than the $1500-$2000 you paid out of pocket.

The reason is you property 'loses money', then it lowers your taxable income (so maybe the owners taxable income was $80,000, but afterwards, it is $70,000). If you can drop a tax bracket, you can literally save hundreds, if not thousands of dollars. Of course, the more properties you own the harder it is.

I know some rental owners who actually do renovations on their properties to create a rental loss.

The problem comes when you sell them off. Then capital gains bites you in the ass big time...

I'm very interested, but what do you mean about dropping you tax braket? It is my understanding that when you collect a rent check, its is all taxable income unless you can declare expenses against that rent check. A mortgage payment that is almost all interest will knock the rent check down to nothing in a hurry..........however, what do you mean about a tax deduction applied to other income? I dont see how that is possible, if the deduction is going towards killing over you rental income.

Are you declaring the same tax deduction twice? how is that possible?

[bootlegga]

ASLplease ASLplease:

I'm very interested, but what do you mean about dropping you tax braket? It is my understanding that when you collect a rent check, its is all taxable income unless you can declare expenses against that rent check. A mortgage payment that is almost all interest will knock the rent check down to nothing in a hurry..........however, what do you mean about a tax deduction applied to other income? I dont see how that is possible, if the deduction is going towards killing over you rental income.

Are you declaring the same tax deduction twice? how is that possible?

No, nothing is claimed twice. For example, if you own a condo and collect $12000 in rent (say $1000 per month), but your expenses are $20,000 (mortgage insurance is usually the largest expense and in the early years of a mortgage, almost 100% of your monthly/biweekly payments) that year, then your property incurred a $10,000 loss for tax purposes.

You can claim this 'loss' on your income taxes. Therefore, if you work and earned $80,000, but your rental cost you $10,000, then you pay taxes based on $70,000 income, not $80,000. I said drop a tax bracket because I think there is one at around $75,000, but I'm not totally sure on where all the tax brackets are. The point is if you make more than about $60,000 a year, taxes get pretty high, somewhere near 25% I think, which means you can literally save thousands of dollars per year in taxes ($10,000 x 25% = $2500).

The point is if your rental costs you more money than you take in, it incurs a 'loss' and you can take that off of your own personal taxable income.

It is a win-win if you ask me. Someone else pays for your mortgage (or a large portion of it), and you get to write off all the interest on your mortgage, as well as condo fees, purchases for the condo like appliances, fixtures, etc. thus lowering the taxes - both federal and provincial - that you pay each year.

[andyt]

You're still getting confused tho Boots. If you could charge $2000 a month for that condo (ie that was the market rate) which puts you in a profit position, you would only pay 25% tax on it. So you would be ahead 75%.

The problem comes from your terminology - you make it sound like taking a loss and dropping a tax bracket puts more money in your pocket than taking a profit and paying a higher bracket on that - it just can't happen.

Either way, if you take a loss or make a profit, what renting does is allow you to write off your mortgage costs. So you get a benefit either way, in fact more benefit if you can rent at a profit. Pretty hard to rent out part of your home and have that rent pay for all your mortgage tho - the market usually won't bear that unless you live in Ft McMurray or somewhere like that. (Ie where people are desperate for rental accommodation).

If you lived in the states you could write off your mortgage even if you don't rent out. The public subsidizes homeowners. It means homeowners try to keep a high mortgage on their property, and in part led to the housing bubble there.

[Brenda]

The Netherlands has the same system. Interest is deductable. No bubble burst there tho...

[andyt]

Brenda Brenda:

The Netherlands has the same system. Interest is deductable. No bubble burst there tho...

Doesn't make sense to me, renters subsidizing homeowners. In that case rent should be deductible too.

[Brenda]

andyt andyt:

Brenda Brenda:

The Netherlands has the same system. Interest is deductable. No bubble burst there tho...

Doesn't make sense to me, renters subsidizing homeowners. In that case rent should be deductible too.

There is no such thing there as there is here, where private persons can rent out their houses. Everything is through corporations or municipalities.
I even think it's illegal to rent out your house.

Second mortgages (on second houses) are not deductible, btw. (anymore, they used to be)

[andyt]

Brenda Brenda:

andyt andyt:

Brenda Brenda:

The Netherlands has the same system. Interest is deductable. No bubble burst there tho...

Doesn't make sense to me, renters subsidizing homeowners. In that case rent should be deductible too.

There is no such thing there as there is here, where private persons can rent out their houses. Everything is through corporations or municipalities.
I even think it's illegal to rent out your house.

Second mortgages (on second houses) are not deductible, btw. (anymore, they used to be)

Strange, but doesn't address the question of renters subsidizing homeowners.

[Brenda]

How can renters subsidize homeowners when the home owner is a corporation?
BTW, the interest is deductible. When you rent, you can get other forms of subsidy. Like rent-assistance.

[andyt]

Brenda Brenda:

How can renters subsidize homeowners when the home owner is a corporation?
BTW, the interest is deductible. When you rent, you can get other forms of subsidy. Like rent-assistance.

Renters are subsidizing private homeowners by having their taxes go to help the homeowner buy his/her house. Maybe this is clearer to you if I use the term non-homeowner. Renters are not subsidizing whoever they rent from, whether individual or corporation, since they receive a benefit (ie a place to live) for their rent. But renters pay taxes too, right?

It doesn't seem fair to me. The state subsidizes the homeowner's costs to buy the house.

[bootlegga]

andyt andyt:

You're still getting confused tho Boots. If you could charge $2000 a month for that condo (ie that was the market rate) which puts you in a profit position, you would only pay 25% tax on it. So you would be ahead 75%.

The problem comes from your terminology - you make it sound like taking a loss and dropping a tax bracket puts more money in your pocket than taking a profit and paying a higher bracket on that - it just can't happen.

Either way, if you take a loss or make a profit, what renting does is allow you to write off your mortgage costs. So you get a benefit either way, in fact more benefit if you can rent at a profit. Pretty hard to rent out part of your home and have that rent pay for all your mortgage tho - the market usually won't bear that unless you live in Ft McMurray or somewhere like that. (Ie where people are desperate for rental accommodation).

If you lived in the states you could write off your mortgage even if you don't rent out. The public subsidizes homeowners. It means homeowners try to keep a high mortgage on their property, and in part led to the housing bubble there.

I'm not confused at all. Maybe in other places you can buy a house/condo for $50,000, pay a $250 mortgage each month and rent it for $500 per month, but that doesn't happen in Edmonton nowadays (I have a friend who does it in Prince Albert, SK).

Current mortgage prices ($200K + for a condo, 300k+ for a house) in most major Canadian cities prevent making a profit from the get go. The only people pulling in a profit on a condo/house rental are people who bought them before prices skyrocketed in 2005-06 or those who don't have a mortgage on them at all.

Good luck getting $2000/month for a condo in Edmonton.

Like I said, I had one beside an LRT (subway) station that was 15 minutes from downtown and the best I ever got was $1200/month, which almost covered the mortgage payment, nevermind property taxes, condo fees, insurance, repairs, etc. The only possible place in Edmonton you might get $2000/month is downtown, and then the purchase price for a condo is $400,000+ or so anyways, so you'd probably still be in a loss situation for the first decade anyways.

Trust me, if it was possible for everyone to make an extra $10000 a year renting condos/houses, many more people would be doing it.

[Brenda]

andyt andyt:

Brenda Brenda:

How can renters subsidize homeowners when the home owner is a corporation?
BTW, the interest is deductible. When you rent, you can get other forms of subsidy. Like rent-assistance.

Renters are subsidizing private homeowners by having their taxes go to help the homeowner buy his/her house. Maybe this is clearer to you if I use the term non-homeowner. Renters are not subsidizing whoever they rent from, whether individual or corporation, since they receive a benefit (ie a place to live) for their rent. But renters pay taxes too, right?

It doesn't seem fair to me. The state subsidizes the homeowner's costs to buy the house.

Yep. The state also subsidizes people with children (child tax benefit, schools, sports clubs, day care) and elderly (subsidized nursing homes etc), sick people (health care), bicyclers (bicycle paths), car-owners (roads, road tax alone doesn't cover the cost of building and maintaining) etc etc.

I guess that's not fair either? Like I said, rent assistance is something you can get, that is paid for by taxes too.

[andyt]

Yep, you're confused. What you wrote above is true, as I said, hard to have renting part of your house pay the whole mortgage, unless you live somewhere where people are desperate to rent.

But you keep presenting it that somehow getting less rent than you pay in house costs is better than if you could get more rent, that you make more money in the former case. That's what had ASL questioning you too, seeing dollar signs in his eyes.

Again, renting out part of your house means you get to deduct mortgage interest and presumably taxes, maintenance, heating etc against the rent income, which you would not be able to do if you didn't rent out. You profit even if your rental income is less than your expenses. You would profit more if your rental income was more than your expenses tho, and this is where your terminology is confusing, making it seem like you get more profit for a loss than a profit. Just can't happen.

[Brenda]

Oh, btw, I forget to mention that you pay 6% tax over the selling price of the house that you bought.

[andyt]

Brenda Brenda:

I guess that's not fair either? Like I said, rent assistance is something you can get, that is paid for by taxes too.

Likely you only get rent assistance if you are low income. But the mortgage subsidy applies to everybody. I'm not in favor of this because it is a wealth transfer from the poorer to the richer, ie it goes the wrong way.

Nursing homes in Canada are only subsidized for low income seniors. Health care covers everybody, but taxes for it come primarily from upper income. All the examples you cite are either universal or favor low income. It's true tho, a high income person who rents in Holland is really subsiding the homeowners.

[Brenda]

It's a deductible, not a subsidy.

A high income person who rents in the Netherlands is an idiot.
The deductible makes it possible for lower than middle class incomes to buy a house, making it cheaper than renting, which is the whole idea.