We currently own a rental in Ottawa - it was our primary residence and we were aggressively paying down the mortgage; it was paid-off 3 years ago. 2 years ago we decided to move, but thought we'd rent out our old house. Being newbies to owning income property, I don't think we properly thought through all of the financials.
The situation is:
Income property is mortgage-free. The rent more than covers all expenses associated with that house. However, because we didn't sell that house (valued at ~$525K), we have a hefty mortgage on our new house (remaining mortgage is $490K). The rent covers most of our primary residence's mortgage, but we end up paying about $14,000/year in mortgage interest on our primary residence, which is not tax-deductible (Canada). If we sell our rental, we can pay off our primary residence, and not have to pay all that interest.
The question I have is - is there a way to turn this around? I consulted an accountant who said we could take a HELOC from our rental to pay down our mortgage, and then claim that interest against our rental - but then I also consulted CRA and was told no, you definitely can't do that (I had my doubts!)
I can't think of any way to increase our deductions against our rental and decrease non-deductible primary residence expenses, other than to sell the rental - and so not sure it makes sense to keep it. The optimal situation of course would be for the rental to have the large mortgage, and our primary paid off; alas we are the reverse.
We have excellent tenants who have been here 2 years, and will be staying 2 more years (they are on a 4 year work-term, and will definitely leave in 2 years). Currently we figure we'll keep it and sell it once they leave, but any other suggestions? We admittedly aren't really business-minded, and like the tenants, so would feel bad to sell now, but on the other hand, it is a business, and it's hard to justify keeping it.
Sorry if this is convoluted - if you need any more details or specifics to help figure this out, let me know.
Thanks~