Compare Miami and Vancouver all you want. If you can derive a lesson, great.

Whatever way you slice it, you said:

“What you haven’t considered, however, is that both property taxes and mortgage interest are tax deductable in the US whereas neither are deductable here. Give me higher property taxes but allow me to deduct these and mortgate interest any day of the week – as an investor, I’d be much further ahead.”.

That statement is incorrect for investors. Those are deductible costs for investors here. BTW, higher deductions don’t make a better investment.

You’re also blurring the lines when you describe today’s investment property as illegitimate because its use may change in the future. That’s crazy talk.

If your point is that downtown Miami experienced more supply than demand, and so saw softening prices, hey, that sounds reasonable to me (although prices that soften after rising too fast aren’t exactly bad news. Again, think it through, or better, visualize what you’re saying. Prices shoot from $10 to $100, and then soften? To what? $75?).

If your point is that softening demand and continued over-supply in Miami will repeat here, I think you need to put some meat on that argument’s bones. We all see how much is being built. Everything that doesn’t already have something on it, whether its downtown or in Whalley, has a sign announcing something new. You’d have to be sleepwalking to simply assume all that supply will be absorbed. Any thinking person has to wonder: who is going to live in these places?

It doesn’t matter who owns them. The only thing that matters is that they be occupied. But simply assuming that they won’t be occupied is as soft an argument as simply assuming they will be. I don’t have the numbers to make the argument either way, but I sure wonder about it. Consider this: if I find a PoCo apartment that will cash flow for 35% down today, how will it do in 3 years, if we do indeed over-build drastically? Will its rent drop? Its certainly possible.

So, if we’re going to fill any boots, you give it a try, but fill out the argument some more. I’d also like to understand why you limit the examination to downtown cores. Don’t you notice what’s going on in other areas? From here to Hope we’re building like crazy.

Let’s get back on point here.

I was responding to New Flash’s remark that the softening of Miami’s downtown condo market was related primarily to increased property taxes and insurance and that downtown Miami was an invalid comparison to downtown Vancouver.

I disagree with News Flash’s perspective. My perspective is that downtown Miami, long before subprime debacles and increases in property taxes and insurance, experienced softening prices due to RE prices rising too fast too soon combined with building that eclipsed (and still eclipes) intrinsict demand. I stand by that remark and I do think it is analogous to Vancouver.

If you wish to debate me on that point, fill your boots. Cheers, JR

Interesting post, and a common practice. Like always, get professional tax advice, but again, its a common practice (you saw it on CCRA’s website, right?). When I first saw your question it occurred to me that you might be trolling, though!

Johnnyrent:

Interest/taxes are deductible on legitimate investments. Anything other than a legitimate investment is cheating on your taxes. Nobody recommends doing that. You’re not really clarifying anything, beginning with forgetting that taxes are deductible on investments and continuing with the concept of “…legitimate RE investments (as distinct from future principal residences)…” Think it through: If I buy an investment property today, and take all the write offs, and in ten years decide it will become a principal residence, exactly who am I cheating? You pay the appropriate capital gains when you sell (remembering that death = a deemed disposition).

In regard to seeing a profit, that is arguable territory. Rev Can has argued that an investment property has to return a profit within a certain amount of time. Their prey has argued that the profit is obvious, and is payable upon disposition. Judges have agreed with the latter position, but the taxman is greedy. Examine first what a profit is (its not the same in tax and legal terms as we’d generally imagine), and then try to accomplish that.

Also review what a capital gain is and when its triggered. Its not always/only triggered at time of sale.

All that said, it is a common practice to reduce tax on earned income by incurring an interest expense. Its really deferral and reduction, because you will eventually pay tax on the capital gain.

Here’s the question: are the people who take advantage of this still part of the minority that pays the majority of income tax?

And, given the regular surpluses we have, should we require capital gains tax at all, or should we allow tax deferred exchanges?

Good point. I can’t do this indefinitely(i.e. Smith Man.). I believe they expect you to see a profit within a certain amount of years. 8-10 years seams to be the max they will wait, but I will look into that.

The CRA page just says that if you consistently show a loss they won’t allow the loss. Thanks for the help.

This takes a considerable sting out of the cost of home ownership for Americans.

First, to clarify for you and others re: taxes, I am well aware that as it concerns legitimate RE investments (as distinct from future principal residences) in Canada, property taxes, mortgage interest etc. are tax deductable. The operative phrase, however, is “legitimate RE investments”. The difference in the US is that property taxes, mortgage interest and insurance on principal residences are tax deductable, whereas they are not here, and this takes a considerable sing out of the cost of home ownership for Americans.

Escalating property taxes and insurance costs in Miami exacerbate the housing slump, as do subprime woes. At the root of the problem, however, were prices going up to far too fast, eclipsing what fundementals could ultimately sustain, while building outstripped intrinsic demand, both of which originally caused prices to stop rising, become flat and then decline. I am of the view that the same scenario will unfold here. In that context, then, I think it is fair to compare downtown Miami and Vancouver. I’ll leave you to argue the Zimbabwe analogy.

I believe that Revenue Canada expects at some point to see a profit on your income properties
so you won’t be able to indefinitely carry on running in the red. Not tax advice

I think I just might take your advice and talk to a tax planner.

I would just like to point out that this is a very common scenario that is listed on the Canada Revenue site but I appreciate any advise.

Worst case scenario I don’t get as big a return as I had planned. I’m not likely to owe them extra because I was taking a loss.

No offense, but everyone who has commented does actually claim to know if this is ok. I’m 99.95% sure it is ok. Does anyone actually claim to “know” different.

Isn’t this conversation much more enjoyable than the Bears saying the sky is falling and the Bulls wondering why anyone would continue to pay rent if they could help it.

Note taxes are deductible for investors and there is a home owners grant for non investors in Vancouver.

And besides that you would gladly pay $20,000 per year for property taxes compared to $2500 per year if the $20,000 was tax deductible? Okay dokey.

The point was costs in Florida for home ownership have sky rocketed due to insurance and taxes. This has caused the soft market. I agree if property taxes in Vancouver increased by 8 fold, with higher rate increases for non residents combined with insurance premiums of $15,000 per year we will easily see the same soft market. There is no indication this will happen in Vancouver therefore Florida is a poor comparison.

Why not use Zimbabwe? House prices have sky rocketed there and can double daily in the local currency. Does that mean it will happen here as well? I don’t think so.