Greetings, hive mind.
I've got a question about how to eliminate my tax-deductible debt.
Background: After paying off my house in full, I used it as collateral to get a HELOC from TD, investing the loan in individual dividend-paying Canadian stocks. Keeping scrupulous records of all the relevant transactions, I used the HELOC only to invest in those stocks. Pretty straightforward.
Because I foresee my HELOC interest rate slowly creeping up, I am planning to pay it off over the next few years. I foresee my total expected after-tax return (taking everything into account) getting smaller and smaller. Also, I simply want to lower my risk.
I have a choice. I can:
A. pay the HELOC off using the proceeds from selling some of the very same stocks that I used the HELOC for, or
B. pay it off using the proceeds from selling some other individual Canadian stocks that have a smaller % of unrealized capital gain.
To lower my immediate tax bill, I want to do B. Can I do B instead of A?
Thanks in advance, a_l
how to eliminate tax-deductible debt
- always_learning
- Contributor
- Posts: 530
- Joined: 01 Mar 2005 21:44
- Location: Halifax
Re: how to eliminate tax-deductible debt
I don't see any reason why the source of funds used to pay off the loan is an issue. You can pay it back anyway you wish. Ie out of regular cash flow or sale of any asset. Makes sense to use the funds that cause the least tax.
Re: how to eliminate tax-deductible debt
Agreed except I would only do the latter (least cap gains) if I thought the forward returns on those stocks is likely/possibly to be less or equal to that on those investments with higher unrealized cap gains. IOW, don't let the tax tail wag the dog. Make decisions on a 'go forward' basis.
finiki, the Canadian financial wiki The go-to place to bolster your financial freedom
- always_learning
- Contributor
- Posts: 530
- Joined: 01 Mar 2005 21:44
- Location: Halifax
Re: how to eliminate tax-deductible debt
Thanks, SQRT and AltaRed.
a_l
a_l