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If i bought a farm, lets say 100acres for $500k with a house on it that i would live in, and entered into a sharecrop agreement to have a local farmer, farm the land....Would all the interest from the mortgage be tax deductable or only the portion of the mortgage relating to the workable land? How would the mortgage be divided up if the latter? Does anyone know about buying farmland?

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Usually the farmhouse and the surrounding half-hectare of land is considered to be the "principal residence" for tax purposes.

If you rent out the land, the income you receive in return is considered "farming income" for tax purposes.

You would ordinarily determine the fraction of rented land and the fraction of non-rented land/principal residence and prorate the mortgage interest accordingly.

However, you would need to have an expectation of profit in this venture in order to deduct the mortgage interest.
 

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So in my example, lets say 1 acre that the house is built on is considered "principal residence" does that mean of the 500K mortgage, only 5k would be considered principal mortgage? Or do they value the house separately?
 

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The purchase price must be divided into sections for tax purposes
In your case, it would be prorated into- your principal residence building, your principal residence land, the extra land that is being leased out. Consult with an appraiser in your area to figure out the percentages and the proration.

Land is never eligible for CCA, although it usually appreciates in value and you do have a capital gain when you come to sell. Your principal residence land and building will not be subject to capital gains. But the land that you are leasing out will be; this would happen whether you report the income as rent, farming or don't report it.

Re deducting the mortgage interest:
supposing you ended up with this proration:
Principal residence- 5% of 500K = 25000, of which 12500K is land and 12500K is building. You do not deduct any part of this mortgage interest.

Leased-out land- 95% of 500K = 475,000. You can deduct this part of the mortgage interest against rental/farming income that you declare. Note: if the rental income is lower than the mortgage interest, CRA will eventually start looking at your losses and may deny them. So you have to charge a reasonable amount of rent. You do have to report the rental income, because your tenant will be using it as an expense.
 
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