Accounting question -- Home line of Credit

[23994]

Hi,

here is my question: I have property A with Home line of credit, I used this home line of credit to purchase property B, my question is where I should record the interest paid for using this home line of credit? under property A or under property B when I do the book keeping?

Thanks,

Sue

 

[Thomas Beyer]

A or B if A is not your personal residence and if increased LOC plus initial mortgage on A doesn't exceed initial equity.

Usually though on B.

 

[23994]

Thanks Thomas, both are rental property though...I guess the correct answer should be on B property

 

[Sherilynn]

When it comes to deductible interest expenses, the CRA cares what the money is for rather than where the money comes from. If you borrow against your personal residence for investment purposes, the interest is deductible because it is for an investment. Therefore, it would be deductible against the income of the investment.

Likewise, if money is borrowed from rental A's equity to buy rental B, the interest should be deductible against rental B's income.

 

[Thomas Beyer]

Well, if you increase a mortgage ( or LOC) on a rental property A to take out equity then it matters not what you use the money for. Key is to not exceed equity.

Hence my initial commentary.

 

[Sherilynn]

Agreed. Be careful not to over-leverage.

If a HELOC was established at a high property value, and the value has now decreased, it is possible to over-leverage using a HELOC.

 

[23994]

Thanks Thomas and Sherilynn for all of these good tips!