House Rental Purchased from Ex Spouse

[gvjt]

I let my exspouse keep the house, but it is 95% mortgaged, and she is having difficulty carrying it. I was thinking of offering her fair market value for it and letting her live there. I think the situation for tax purposes is no different than me buying a house that I don't plan on living in from a complete stranger. i.e. I should be able to claim the mortgage interest as a tax deduction. I think it meets the appropriate criteria in that it is an investment that I expect to make money off of, and if I put an ad in the paper advertising the basement appartment for rent, then I think her occupancy of the main level should not make it any less of an investment property in the sense that it increases in value, and generates a small cash income in the meantime. Does anyone forsee any difficulty under Ontario Tax Law with such an arrangement? I mean, she's NOT my wife - she's just an occupant of the house, and I certainly don't live there. What about if no one answers the ad in the paper for renting the basement, or the rent I expect for the basement is too high to attract any renters? If my intent is to rent the basement, and we can't find a renter, does the tax law suddenly disallow me to claim the mortgage interest, just because it was a bad investment that I was unable to realize a profit from? My questions are as printed, but just about anyone can read between the lines.

[DadofTwoGirls]

My question is why do you want to stay so connected to your ex? If she can't afford her housing then she should find something affordable. Why bail her out?

All I see is the potential for a big mess with this arrangement. What are you going to do if she can't make her rent payments? Are you going to draw up a contract for the rental? Are you willing to evict her if she can't make payments?

Bad idea.

[gvjt]

The reason for doing this is that it is a win-win situation. She gets a place to live, rent free ...

(the "read between the lines part" was related to the rental incoming coming from the basement being rented ... or at least advertised in the paper looking for a renter ... you know, to keep the government happy that its supposed to be an investment generating an income, since the increase in market value of the house does not qualify it for tax exemption on the mortage interest - rather there has to be an "intent" to collect rent from it too before the interest on the investment is tax-free)

So, back to the point - she stays rent free, but I get credit for providing her a house to live in, reducing my support obligations to her. In the meantime, instead of me giving her money to throw away to the bank, I'm using that same money to purchase a house which she will eventually vacate. (I already talked to my laywer regarding the paperwork required to ensure that she must leave the home eventually, so there's no issue or worry that she might overstay her welcome).

Basically, I can give her cash to pass onto the bank, or can invest the exact same cash into the house myself as an investment. It makes no difference to the support I give her, however the tax implications and the fact that I'm investing my money instead of throwing it away are significant.

Same number of $ ... different final result (nothing, v.s. tax deductions and investment purchase).