I was asked a question today.
A friend of a friend of a friend borrowed money to buy a rental property which she put into a newly incorporated LAQC from the start. So far so good.
This person changed her mind immediately after settlement and chose to live in the house long term as her main residence. This is where I jumped in and said: ‘Oh no, she should not claim expenses even if she chooses to rent from the LAQC. It is too risky.’ I was then told that she did not do that and to be quiet and listen to the end of the story.
I was told she has two other rental properties in her own name with little debt on them and has been told that the loan on her own home should be secured against those rental properties so as to make the interest deductible. At this point I cautiously said: ‘Yes’ as my mind was starting to move into second gear.
I was then asked the question.
She plans to raise funds to the value of the loan on her own home, secured by the other two rental properties; lend that money to the LAQC; the LAQC pays off the bank loan on its sole asset, her home; the LAQC distributes assets (ie her own home) to the shareholders (ie her).
Result: She owns her own home unencumbered and her rental property business has a larger debt, the interest on which is entirely deductible for tax purposes.
“So xris, what do you think?”
For someone as opinionated as me my silence at this point was deafening.
My hesitation arises because…
The purpose of the loan was clearly not to buy rental property, but…
it was also not to buy her own home. Rather, it was to lend to her company, which then chose to repay other company debt, namely the mortgage secured by the house in which she lives.
I thought this might make an interesting topic for a new thread, a variation on those eternal discussions about paying rent on your own home which is owned by your own company.
Does anybody know if this can this be done, with the loan interest being deductible?
xris
A friend of a friend of a friend borrowed money to buy a rental property which she put into a newly incorporated LAQC from the start. So far so good.
This person changed her mind immediately after settlement and chose to live in the house long term as her main residence. This is where I jumped in and said: ‘Oh no, she should not claim expenses even if she chooses to rent from the LAQC. It is too risky.’ I was then told that she did not do that and to be quiet and listen to the end of the story.
I was told she has two other rental properties in her own name with little debt on them and has been told that the loan on her own home should be secured against those rental properties so as to make the interest deductible. At this point I cautiously said: ‘Yes’ as my mind was starting to move into second gear.
I was then asked the question.
She plans to raise funds to the value of the loan on her own home, secured by the other two rental properties; lend that money to the LAQC; the LAQC pays off the bank loan on its sole asset, her home; the LAQC distributes assets (ie her own home) to the shareholders (ie her).
Result: She owns her own home unencumbered and her rental property business has a larger debt, the interest on which is entirely deductible for tax purposes.
“So xris, what do you think?”
For someone as opinionated as me my silence at this point was deafening.
My hesitation arises because…
The purpose of the loan was clearly not to buy rental property, but…
it was also not to buy her own home. Rather, it was to lend to her company, which then chose to repay other company debt, namely the mortgage secured by the house in which she lives.
I thought this might make an interesting topic for a new thread, a variation on those eternal discussions about paying rent on your own home which is owned by your own company.
Does anybody know if this can this be done, with the loan interest being deductible?
xris
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