I wanted to share this great video with everyone. In this video David Ingram answers a viewers email about how to make your mortgage interest deductible. Enjoy!
Right now what I want to talk to you about is Mortgage Interest as a deduction in Canada. And I’m going to start of with a little segment saying – is it legal. And I’m going to sort of read from something that I handout at seminars and I have to tell you that I’ve done these particular two pages for over 6,000 people at seminars in Toronto, Calgary, Victoria, Vancouver mainly in the last year and a half, coming up to close to 2 years.
We started in August 2008 it was the first day that I presented this and I’m going to sort of give it to you as I’ve written it down and make some – things here and I hear the phone ringing, it maybe just be somebody has a question.
You can find out how to make mortgage interest, car interest, boat interest and just about any other interest deductible in your Canadian income tax return by going to www.centa.com and reading the November 2001 newsletter in the top quarter. In the November 2001 newsletter, it’s about 12 pages and it is heavily read. I think it’s been downloaded some 3800 times the last time I looked. We have mailed out over the years over 3000 copies as well and its just sort of one of those things that keeps on going on and on and on. Here is the November 2001 newsletter and it’s free for you to go and take a look at centa.com top left end corner November 2001. And I’m going to refer to that as we go along.
Well I first conceived and I lay claim to being the first person and candidate ever to put in writing how to make a Canadian mortgage deductable, just like in the states. In fact I have to tell you that when you deduct the Canadian mortgage the interest on the Canadian mortgage because you made the mortgage a business deductible mortgage or an investment deductible mortgage, it is a better deduction than it is in the states, because in the United States you loose your standard deductions. So if you got a 50 year old couple with a couple of kids, they normally get about an $11,000 standard deduction and if they have a $200,000 mortgage at 5%, to claim the 5% interest worth $10,000 of interest and they get to claim the profit taxes and so on, they give up the standard $11,400 deduction for them just to get – the standard deduction. So if you have $3,000 with the property taxes and $10,000 with an interest and then a couple of other minor things you might end up with itemized deductions of about $13,500 or $14,000 but all you are really getting is a $3,000 deduction because you give up the $11,400.
In Canada if you’ve got the $10,000 of the interest is deductible its $10,000 deductible on top of all your standard deductions. Far better, much better deductions in Canada, just harder to make it happen. So I first conceived to this in 1976 and published it in November 2 by 1976 in the Northshore news and a newsletter from the Northshore Credit Union and it was gang busters at the time and everybody got interested. For a brief period of time I had literally 300 – 400 people set up their affairs to make the mortgage deductible and then it just died, and I don’t know why because it was there. I kept on talking about it and pushing about it. I’ve likely mentioned it at over 3000 seminars and that many seminars that I’ve done in radio programs and television programs and so on. It has been amazing.
Anyway the reason that I figured it out was pretty simple. I had a client and the client had a duplex and in the duplex he had a tenant and the tenant was in a car accident and the tenant in the car accident didn’t pay the rent for a while. It was a couple of years that they didn’t pay the rent but my client liked the tenant and the tenant was in a rough situation and he kept on letting her – it was a she stay in the place without paying the rent and the case while they were doing this he had to borrow money from the bank in the line of credit to make the payments on his duplex and pay the property deductions and the interest and so on. And these loans were purely made to carry the expenses of a business rental property. And the fact is you can only deduct half of them but it was still a deduction and at the end of a couple of years she got an insurance settlement from what the new company called ICVC and she paid him his 2 year 24 month whatever it was back rent. And he phoned me and he said David you said I’ve got this loan that with this deductible you said and I was always intending to pay it when I got the rent but do I have to?. And we discussed what else he could do with this money, he could buy a boat, he could take a vacation to Hawaii. He could do almost anything with it or he could pay off his business loan. And I said no – I said it doesn’t make any sense to pay off the business loan and I think what he did is he paid off his car loan which wasn’t deductible either but it doesn’t matter, that’s what I conceived and put in writing in November of 76. The concept of making your mortgage interest deductible and then I realized it was possible for anybody to do that.
For instance this fellow – I’ll call him George it wasn’t his name but I then told George why don’t you just keep on doing that. Why don’t you just keep on borrowing money every month to make the payments on this rental duplex and take the rent that you’ve got coming in and use it for some other things that you are doing that aren’t deductible. And that’s what he did and we came up with this concept. So let me use a couple of other examples. We can use the example of a dentist in the private practice; it doesn’t work if the dentist has been silly and gotten incorpated. But if you’ve got a dentist the whole thing say $200,000 a year, not an offal lot of money for a dentist, and the dentist happens to have a $200, 000 mortgages on his house. The dentist could take all the money coming in from his practice and he could pay down the mortgage on the house, so over here he starts of with just $200,000 mortgage, it isn’t deductible and here he’s got a line of credit. And the line of credit security against the house but at this point he’s got a $200,000 mortgage but the first month of it takes him $10,000 and pays it down on the mortgage, the equity went up $10,000 because he’s paid it. So if he goes to the bank and says look I need $8.000 to pay my receptionist and pay the office rent and pay for some hygiene supplies and those kind of things. They can give him a loan of $8,000 or $9,000 maybe even the whole $10,000 and with the second charge they’ve got against the house because he’s got more equity. So now he’s got $10,000 or $8,000 or $7,000 and the interest on that is deductible and then the next month he does another $10,000 or $15,000 with the business and he takes and pays this amount down here now he only owes $180,000 or $175,000 or something. But he’s got to pay his receptionist, his rent, his dental hygienist and fellow who made the crowns for him and so on