Line of Credit Interest Deductability

[bobgerard]

If I have my principal residence fully paid for, can I use a HELOC backed by my residence to purchase an investment property in its entirety, and deduct the interest charges on that loan. My question comes from the fact that on Tip #38 in Don C's book "81 Financial and Tax Tips" (page 89), he states "The loan must be documented with a rate of interest, terms of repayment, an amortization period and a term for the duration of the loan" in order for the loan to be deductable. That's a mortgage. Does this mean you can't use a LOC ?

Thanks.

 

[TodorYordanov]

The interest on your line of credit is the interest that you can claim.



I am not an accountant.

 

[Thomas Beyer]

You must be able to demonstrate that the LOC was used for investments, and not for pleasure, say a trip to Disneyland or a new boat !

 

[Sherilynn]

You can claim any interest as long as you can trace the cause of the interest back to investments. So the LOC can be secured against your personal residence and you can still deduct all interest as long as none of the interest was for personal use (as Thomas mentioned).



You may want to consider dividing your HELOC into two portions: one small one for personal use (better than a car loan) and the rest for investments and their related expenses.



Never mix personal and business borrowing. If you do, you risk having the CRA deny the deduction completely.