Deductibility on interest on borrowed money (after the deal is closed)

[llee]

Hi,

For example, I spent $30K cash to close a rental property recently, and now I decided to write myself a cheque from Home Equity account for 30K. Can I expense the interest on the Home Equity against the rental income?

My gut feeling is it`s deductible, as long as the borrowed fund is traceable to an investment. So I can write myself a cheque with a note: "For the Purchase of Rental XXX". Is that correct?

Thanks.

 

[DonCampbell]

Hi Lucas,

In this case it is not as black and white as we would like it to be. However, you are in a very good position to use the interest on the LOC as an expense against the property.

Your very next step is to call your accountant to make sure the paper flow is proper. Sometimes if the cheque is written into a personal account that creates grey areas which you don`t want. Work with your accountant to ensure that it is as black and white as possible... and that goes right down to who the cheque is written to and what account it is deposited in.

Take a quick read of the tips in the 81 Financial and Tax Tips book for a bunch (81 to be exact) of these very subtle, but important action steps.

Sadly, many ignore these tips only to have it come and bite them later.