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Second Homes: May Cause Future Tax Confusion

confusion over debt

Since the Canadian mortgage rates are still in its low records and are projected to stay in this level for a certain period of time, many Canadians are considering buying a second property or home. They find this move a very convenient one as they can still make sure that they can afford getting another property especially if their current income permits them to do so. Many would find this move advantageous especially when they want to purchase another home as a place for resting or use it as a property for rent.

 

Though the idea may sound inviting, many financial experts are saying that people who are unfamiliar with this process should take their first step carefully. They must spend much time in getting to know the possible issues they may encounter especially when it comes to paying off their taxes. Experts are warning interested homebuyers that are planning to make this move to consider thinking about important things to avoid paying high amount of taxes.

 

This move may sound risky for some but experts have some helpful methods to share to make sure that they can still manage to take this move without worrying about possible financial problems. One of the basic things to do is to have a separate mortgage from the second one. You must keep it completely separated as the interests for second mortgages are tax deductible. So, you should keep in mind that when your first and second loans are not separated, this will not matter anymore. The tax deductible amount of the interest is enough to reduce the total tax that you will be paying for the properties.

 

Another helpful tip from experts is that, buying another home would bring issues on capital gains taxes since the value of the property will grow and it can be passed on to the children. For this to be mitigated, experts recommend the homebuyers could get a policy for a life insurance to pay off the taxes or sell it early and have the taxes paid when gains are lower than the norm.

 

Such steps are enough to make sure that the second home that you will be purchasing will not cause any problems regarding your taxes. Furthermore, this will also save your children from having problems with the property when it is passed unto them by their parents. These are the things that homebuyers must consider doing especially when they are trying to take advantage of the low interest rates that Canadian mortgage have now. It is necessary that people will take enough information on what risks are waiting for them before they make a move especially with regards to their finances.

 

Though the time is perfect for getting another property, there are economists saying that this situation on the rates would start fading away soon. Bank of Canada is now expected to have a raise in its interest rates anytime for the following months. This may close the decision on whether you should get a second property now or just save the money for other purposes.

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