Buying House Question

[bacid1]

a friend of mine brought something to my attention (he buys houses and rents them out) and i'm wondering if this would be advantageous if the house i'm buying is my primary residence.

would i save money by:
- purchasing house as a residence through a corporation (which i would own)
- rent it out to myself for a reasonable market rate
- expense all the mortgage/utilities cost as a business expense while claiming the rent as income
- writeoff my own rent on personal tax return as living costs

OR should i just buy the house under myself and skip all the hassles?

[thesk8man]

hi, im not a expert but me, my sis and brother were thinking of doing the same. start a business and buy houses under it and build equity and so on.

but every one who i talked to just laughed and said that if you buy the house under business its considered commercial. so the taxes would be huge.

this is what every one does and we are doing....

we ar three people we buy three houses and rent them out by room or like basement and ground level. as far as i know each person can have one primary residance without having to pay huge taxes on it. you rent it pay off the morgage. then when you sell it you dont pay commercial tax. just regular tax.

[PC-stuff]

would i save money by:
- purchasing house as a residence through a corporation (which i would own)
- rent it out to myself for a reasonable market rate
- expense all the mortgage/utilities cost as a business expense while claiming the rent as income
- writeoff my own rent on personal tax return as living costs

OR should i just buy the house under myself and skip all the hassles?

That is quite complex and would not work for two reasons:
1. Reasonable rent would be one that the coroporation made at least a small
of profit (and thus paid some income tax), and

2. You cannot "writeoff my own rent on personal tax return as living costs."
Most people cannot writeoff anything.

PS: If you are self-employed and do substanial work in your home,
you can claim a PORTION of your house expenses. e.g.
the sq. ft. of your office as a % of the whole house st. ft.
You don't need to set a corp. to do that, nor do you have to own your residence, you can rent.

EDIT: Thx. And reason #3. The corp. has to pay capital gains tax if it sells the house at a profit, even if it is to you!

[cloudycanada]

i guess most people laugh for one reason

you don't get the capital gains exemption for holding a house in the company
which can be huge.......

[cloudycanada]

i guess most people laugh for one reason

you don't get the principal residence exemption for holding a house in the company
which can be huge.......

[gman]

hi, im not a expert but me, my sis and brother were thinking of doing the same. start a business and buy houses under it and build equity and so on.

but every one who i talked to just laughed and said that if you buy the house under business its considered commercial. so the taxes would be huge.

this is what every one does and we are doing....

we ar three people we buy three houses and rent them out by room or like basement and ground level. as far as i know each person can have one primary residance without having to pay huge taxes on it. you rent it pay off the morgage. then when you sell it you dont pay commercial tax. just regular tax.

If you follow the tax rule correctly, the portion you rent out does not count as your principal residence and hence no capital gain exemption for that portion.

Usually, when you sell your principal residece, there is NO tax. However, in your case and assuming you want to do it right, you need to report capital gain for the portion you rented out.

However, if you rent it out under the table(i.e. illegally), it is another story.

[jande9]

If you sell your primary residence you do not pay any tax on the capitol gains. This can be a huge benefit, especially these days with the market so high. This benefit is not available to corporations.
You are allowed to rent out up to 40% of your primary residence without losing this benefit. You can then deduct up to 40% of the mortgage interest you are paying as well. However, you have to add the rent for that 40% on to your income, so it may almost be a trade-off and not worth it.
The rules for this are stringent, like the area rented out must be part of your residence, sharing kitchen etc, with no private entrance. It is meant to allow you to let out a room for some extra money. However, many people take liberties with this.

[bacid1]

thanks for the clarification & help everyone!

[grant]

Usually, when you sell your principal residece, there is NO tax. However, in your case and assuming you want to do it right, you need to report capital gain for the portion you rented out.

It has been decided in court that the entire capital gains on the sale of a personal residence are exempt even when a large portion of the property is rented.

Back to the OP, i have no idea what you hope to gain from such an arrangement. If you want to live in a house, buy it yourself.

[cloudycanada]

It has been decided in court that the entire capital gains on the sale of a personal residence are exempt even when a large portion of the property is rented.

Back to the OP, i have no idea what you hope to gain from such an arrangement. If you want to live in a house, buy it yourself.

hey, mind to share the court case name?
wanna do some read up on the case law

[CoolEddie]

I don't think this is doable but I can't afford a house in Calgary. Would it be possible for me to buy a house in Edmonton and rent it out, but rent a place for myself personally in Calgary and be exempt from capital gains taxes for my house in Edmonton when I do sell?

[grant]

hey, mind to share the court case name?
wanna do some read up on the case law

Fedel Saccomano was the taxpayer. It happened in 1986 I believe.

[ayeung]

Why so complicated?

Wouldn't it be easier if you (or together with your friends/family) buy your 1st primary residence and live there for a yr, and then buy your second and move, then rent out the first. After a year, buy your third as primary residence and then rent out / sell the first two ...?

The profit from selling the first 2 will be tax free since they were once primary residence for more than 1 yr (correct me if I'm wrong about this). If you want to rent them out, you can deduct 100% of the cost.

[boyoflondon]

Why so complicated?

Wouldn't it be easier if you (or together with your friends/family) buy your 1st primary residence and live there for a yr, and then buy your second and move, then rent out the first. After a year, buy your third as primary residence and then rent out / sell the first two ...?

The profit from selling the first 2 will be tax free since they were once primary residence for more than 1 yr (correct me if I'm wrong about this). If you want to rent them out, you can deduct 100% of the cost.

That's what I am thinking!
Buy a house, get a room for your self and rent the rest out ...
No complication of creating a 'company' and stuff such as that. This way you live in the house, and it getting paid off easily ...

[grant]

... primary residence for more than 1 yr (correct me if I'm wrong about this). If you want to rent them out, you can deduct 100% of the cost.

Primary residency is NOT based on how long you live in a property. It is determined by your INTENDED PURPOSE when your purchase the property.

If you purchase a house with the intention to renovate and sell it for a profit, you are legally obligated to pay straight income taxes on the profit... even if you live there for 5 years!