Custom Home Build - Personal or through a corp
Here's a scenario I wanted to run by someone who may help me decide which direction to go. I'm looking to build a custom build home. I currently own real estate rentals in a corporation and I currently own my primary residence. I'm considering building a custom home through the rental corporation as the owner. The build out would be non-capital expenses even though the land isn't. Say the rental corporation generates $10K a year in rental income but the build cost for the custom build home is $500K. Since that build cost was from borrowed money it's essentially a $500K loss carried forward. The home would be used personally but also renting the basement out to a business(es). So essentially I and the business would pay rent to the corp holding the home. Though the mortgage on the property can't be used an expense, the interest and all the home expenses would be (insurance, hydro, heat, property maintenance, cleaners, etc.). So there's the expense of the build ($500K) plus the ongoing expenses of maintaining the rental property. The tradeoff is that the capital gain when the property is sold would be taxed. The expenses in the 10-20 years the home is acting rental property I think would be far more beneficial in taxes owed than from the tax paid at capital gain (we likely won't see the same appreciation in home value going forward as we have in the last 20 years anyways). And it's possible some of that capital gain may be offset from expenses incurred with that rental property in the year the property is sold. The alternative is to custom build and own the home personally and rental income would be counted as personal income which would be taxed higher depending on tax bracket than taxed within a corp. And any home expenses couldn't be written off (unless a portion were used for business purposes or work from home). Personal ownership would be after tax expenses instead of before taxes. Thoughts on this strategy?
