Real Estate

How best to purchase cottage tax effectively?

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  • Jun 26th, 2016 10:14 pm
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[OP]
Deal Addict
Aug 20, 2007
1930 posts
707 upvotes
Kitchener

How best to purchase cottage tax effectively?

I'm thinking of buying a cottage and am looking for some assistance on how best to structure the purchase to make it tax efficient. We've saved up a good amount for the down payment for the cottage, about 50-60% of our expected purchase price. Based on my discussions with the bank since this is a secondary residence we need to put in a minimum of 20% since it does not qualify for CMHC. We still have a mortgage on our primary home that is about the same as the down payment we have saved. Should we apply the full savings to the cottage and keep our primary home mortgage the same or should we put in the minimum for the cottage and dump the rest against our home?

I'm thinking that if we kept the mortgage higher on the cottage, since its secondary home and subject to capital gains we could also claim the mortgage interest we pay. Is this a correct assumption? Would it make sense keep the cottage mortgage higher and reduce our primary home mortgage? I'm assuming that I can get the same interest rate for the cottage that I current have on my home so the interest % would be the same.
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Sep 25, 2010
219 posts
58 upvotes
peelhic wrote: I'm thinking that if we kept the mortgage higher on the cottage, since its secondary home and subject to capital gains we could also claim the mortgage interest we pay. Is this a correct assumption?
To write off the interest, it must be considered an investment that pays income...dividend paying stocks, or a rental property.
Deal Addict
Mar 1, 2016
1092 posts
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toronto
officialsavage wrote: To write off the interest, it must be considered an investment that pays income...dividend paying stocks, or a rental property.
could this be done by claiming you intend to rent it on Airbnb once a year?
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Nov 17, 2004
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foreigncontent wrote: could this be done by claiming you intend to rent it on Airbnb once a year?
Percentage of use. If you rent it out 1 weekend a year, then you can claim 2 days out of your 365 days/yr of use, which equals to about 0.5% of personal use...probably not worth the effort to claim 0.5% of your mortgage as an expense.
[OP]
Deal Addict
Aug 20, 2007
1930 posts
707 upvotes
Kitchener
Thanks for the replies as the clarifies things for me. Were not planning on renting it out or if we do it will be to some friends, etc for a few weeks a year so nothing significant that would make it. Just one more question, if I was to rent it out for the whole year, does the amount generated impact the ability to deduct the interest on the mortgage? I can't see anything that indicates that there is a lower limit on the income the property generates vs what I can deduct? For example if i rent a spot in the garage to a friend to park their car their full time for $50/month. Would I be able to still deduct the full amount or would it turn into a similar situation as someone renting the basement of their house and only being able to claim partial?

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