How to get my interest tax deductable?

[sfatovic]

Over the past 15 years I have rented a basement suite in my primary residence and I have finally paid off my mortgage and have a HLOC that I haven`t used. My current home would be an Ideal Rental in terms of an upper and lower suite.

Recently both my parents have become Ill and I would like to buy another home closer to them with the equity from my current home and change my current home from my primary residence to an investment property.

Is there a way to struture mortgages or lines of credit so I can create a situation where I could deduct my interest expenses. I realize to deduct interest the money burrowed must be used to buy an investment.

Here is what I was thinking of doing:

Purchase another home with my HLOC and burrowed money from my family (cash deal). Then get a mortage on my new home and with that money pay off my HLOC on my original home that is now a rental property.

I am not sure if this would be acceptable with the CRA, I do not want to sell my current home as it would make a perfect rental with minimal maintenance.

If anybody has some ideas or suggestions that would be great!

 

[realfortin]

Get your current home assesed(the bank would do it for you) and get a conventional mortgage for what ever amount you need to get it to cashflow (up to 80LTV) then take all the money and buy your residence.

All the interest on the rental will be deductible. Don`t complicate things.

RF

 

[Nir]

Hi,

It does not make sense to look for ways to pay more interest just in order to deduct it. even if all the interest you pay is deductible, you still pay it! example: you pay $1000 interest then deduct it. $1000 goes out of your pocket or business but when you deduct it only a portion of it is tax saved as interest reduces your income. bottom line, you paid more interest than the tax you saved by paying interest.

Of course there is an exception: Do you want to continue investing/buy more properties? do you need to maximize your mortgage in order to keep as much cash as possible for the next purchases in order to make it happen?? well if this is not the case then if you can buy your next property cash with some help from family then buy it cash. Don`t take a mortgage in order to deduct it because taking a mortgage just for the purpose of deducting its interest later will generate loss not profit.

(you can do everything you mentioned later - take mortgage on the new home only if and when you really need the money to buy another property..)

People take a loan either to invest or becasue they do not have the option to buy their home otherwise - you do. Good luck.

 

[DaveToynbee]

You could also loan some of your money out from your credit line to another investor for a pre-negotiated return or joint venture to help offset some of the new property expenses...and allow you to deuct the interest payments. How much would you like?

 

[navaz]

The rules with interest are "direct use". Which means follow the trail of money and see how it is used. If it is used for investment, then the interest is deductible. If it is used to buy another principal residence, then it is not deductible. One need to pay careful attention to the "direct use of funds" to determine if it is tax deductible