Personal Finance

Interest deduction followed by capital gain?

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  • May 10th, 2010 5:56 pm
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Jr. Member
Jan 20, 2010
150 posts
1 upvote
Toronto

Interest deduction followed by capital gain?

If I take money from a HELOC and use it to pay off a condo 100%, I understand that I can deduct the interest I pay on the loan as it is "interest on money borrowed to generate income".

When I sell the property down the road, will the gain qualify as capital gain or business income?

The plan is to buy a condo for around $250K in the Yonge and Finch area. At the rate of 4% annually, I will be paying interest of about $833/month. Approximately how much will I "get back" when I file taxes?

Condo fees will be approx. $250-300/month and property taxes will be $125/month approximately. Total expenses with interest equal around $1250/month. Hopefully i can rent it out for around the same, if not a bit more. This will cover my carrying costs till I decide to sell.

Yes, I realize this is speculation, but how does the overall plan sound?
1 reply
Deal Addict
Feb 5, 2009
2808 posts
940 upvotes
Newmarket
Yes, you can deduct interest as long as the loan is used for investment property. When you sell it it will be a capital gain. If your expenses equal revenues then it will be a wash on your income tax, if you have losses the amount your tax liability will be decreased not only based by the amount of loss, but also based on your whole situation, level of income and so on. If you have profit you will have additional tax liability.

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