Quote:
Originally Posted by lowside67
The proper way to analyze this is to assume that your mortgage debt is tax deductible when you are comparing it to a non-registered portfolio. While it may take some up front work and perhaps realizing some capital gains to reorganize in this way, the point is that you should be able to use the Smith maneuver to result in your interest being deductible if you leave the mortgage in place to keep a non-registered portfolio in place.
Therefore, the math should really be (assuming you are in the top marginal tax rate):
Cost of debt = 4.5% with a 53.5% tax credit of that amount, net cost = 2.1%
It's also worth remembering than equity portfolio that returns 10% per year in the long run would typically do a few percent in dividends, and most of the rest in capital gains which is half the tax bill.
The net of this is that the after-tax result of having 4.5% debt and a 10% return on an equity portfolio is an average gain larger than 5.5% each year, not less.
-Mark
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assume your mortgage is tax deductible? isn't that only possible for a rental/income property