UST/Luna - Worthless now!

Discussion in 'Off-Topic Discussions' started by AsianStew, May 14, 2022.

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  1. Johann

    Johann Well-Known Member

    Dang that timer! Should say "less than 80% of the value of the home." And - I'm told it's even possible to get a FIFTY year mortgage here - if you have enough equity to do the deal without CMHC insurance involvement.

    Francis Bacon said "knowledge is power." Johann says "money is power."
     
    Last edited: Oct 13, 2022
    SteveFoerster likes this.
  2. Vonnegut

    Vonnegut Well-Known Member

    Land acquisition costs now constitute an average of 40% of housing prices in the US. Over double what it historically has been. Imagine that Canada is in a similar position. Unfortunately it effectively crippled the profitability of developing affordable housing.
     
    SteveFoerster likes this.
  3. SteveFoerster

    SteveFoerster Resident Gadfly Staff Member

    Thanks, Johann, that was informative and useful.
     
  4. nosborne48

    nosborne48 Well-Known Member

    If you structured a mortgage like Johann describes here in the U.S. it would almost certainly be treated as an interest bearing loan by the IRS. The parties cannot avoid that treatment merely be declaring that the buyer gets a certain amount of "equity". The IRS will impute market rate interest as part of the overall purchase price then impute what portion of each payment made is principal and what portion is interest.

    This matters a lot to the IRS because that imputed interest is taxable income to the seller or financer. It is also deductible against ordinary income by the purchaser. The effect of the arrangement would be to shift taxable income from the lender to the buyer and that's usually a no no.

    I would be surprised to learn that the Canadian authorities would see it differently but who knows. It's Canada after all.;)

    As always, this isn't tax or legal advice so don't rely upon my opinion when making your own financial decisions.
     
  5. Johann

    Johann Well-Known Member

    Yeah, they do. Mortgage interest isn't deductible on personal taxes, here. Oops - I forgot to tell Steve that. Anyway, I know for sure that it's being done by institutions, so I'm sure they've got their end covered. They always have.
     
  6. Johann

    Johann Well-Known Member

  7. Johann

    Johann Well-Known Member

  8. nosborne48

    nosborne48 Well-Known Member

    Is the "rent" taxable income? Can the finance company foreclose on the buyer's interest if the buyer defaults? Can the finance company require the buyer to bear all of the costs of maintenance and repair over the entire property? Does the finance company take depreciation against its interest in the "rental" property? Who pays what part of real estate taxes? Does the buyer have the right to exclude all others' presence?

    There are a thousand and one questions in this type of transaction and whether the IRS will see it as I do at first glance, imputed interest on a loan, will depend on the answers to these and many more.
     
  9. Johann

    Johann Well-Known Member

    From previous posts:
     
  10. nosborne48

    nosborne48 Well-Known Member

    Two things, by the way. I'm not impressed that at least some buyers wish on the one hand to deny that they're paying interest yet want to claim a mortgage interest deduction. Okay then. Right.

    The second thing is that I absolutely think they ARE entitled to take that deduction! It is immaterial to me what they call it among themselves.

    Oh, a third thing...the rather good article Johann linked called some forms of prohibited interest "riba". The Gemara Aramaic term is "ribit" which loosely translates as "bite".
     
  11. Johann

    Johann Well-Known Member

    Yes - I think you and I had a discussion quite a few years ago on DD. I used what I thought was a Hebrew word. I'd read it as "ribis" and you said it should be "ribit." And after the frog-chorus died down, I mentioned the Islamic concept of interest as "riba" and thought (as I still do) that there might be a linguistic connection. Just now - I read something...

    According to Rabbi Wiki (thanks) - heeere's RIBA! :)

    Riba is an Arabic word that means “to increase" or “to exceed" and is commonly used in reference to unequal exchanges or charges and fees for borrowing. Interest is deemed riba, or an unjust, exploitative gain, and such practice is forbidden under Islamic law.
     
  12. Johann

    Johann Well-Known Member

    Last edited: Oct 14, 2022
  13. nosborne48

    nosborne48 Well-Known Member

    My only concern is that the lender must pay income tax on the imputed interest. Or rent received if they call it that.
     
  14. Johann

    Johann Well-Known Member

  15. nosborne48

    nosborne48 Well-Known Member

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