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Unlike Americans, Canadians can’t deduct mortgage interest on their primary residences. However, you can deduct interest paid on an income property—and it’s not just on the mortgage either, says CPA Allan Madan. Rental owners can make deductions against a line of credit used to fund renovations, and even against money borrowed for a down payment. With such low rates, Madan says borrowing to buy or fix up a rental is smart. “You’re increasing your rent and the value of your property, and you can deduct those borrowing costs.” Just remember: You have to be collecting rent for the deduction to count.
The bottom line: Reduce your taxable income dollar for dollar on what you’ve spent. So if you paid $30,000 in interest on an income property-related loan, you can reduce your income by that exact amount.
More tax tips here.
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we are planning on renting our residence which is totally paid off. Can we take a line of credit against our house, use the money to buy another property and deduct the interest against rental income?
Due to the large volume of comments we receive, we regret that we are unable to respond directly to each one. We invite you to email your question to [email protected], where it will be considered for a future response by one of our expert columnists. For personal advice, we suggest consulting with your financial institution or a qualified advisor.