Real Estate

Canadian Mortgage Interest Deduction

  • Last Updated:
  • Sep 18th, 2020 9:34 pm
[OP]
Deal Addict
Oct 22, 2014
3325 posts
1323 upvotes
Toronto

Canadian Mortgage Interest Deduction

Hi I'm looking for some info on Canadian mortgage interest deduction against rental income from a rental property.

The tricky part I'm looking for info is, if I buy the rental property' by refinancing my primary residence (different house) mortgage - so that the rental property is mortgage free (funded from primary residence mortgage) - can I still find a way to deduct part of my primary residence mortgage interest against rental income of the investment property (since that is the loan that funded the rental property purchase)?
2 replies
Jr. Member
User avatar
Jun 3, 2019
143 posts
106 upvotes
GTA
Elfwood wrote: Hi I'm looking for some info on Canadian mortgage interest deduction against rental income from a rental property.

The tricky part I'm looking for info is, if I buy the rental property' by refinancing my primary residence (different house) mortgage - so that the rental property is mortgage free (funded from primary residence mortgage) - can I still find a way to deduct part of my primary residence mortgage interest against rental income of the investment property (since that is the loan that funded the rental property purchase)?
If your refinanced mortgage funds are completely used to purchase the second home then yes you can write off the entire mortgage interest, even the cost to refinance (legal fees, early buyout penalties) can be written off as well. I would not refinance and then only use a portion of the mortgage proceeds to buy the second home and use the remaining amount for personal use as that would make it difficult to separate interest for the investment property vs personal usage. With CRA it's all about the paper trail.

If that is not possible then consider a product like Scotiabank's STEP mortgage where they can separate multiple mortgages under one account. Other lenders have similar products as well.
Realtor® & Mortgage Agent
Deal Addict
Mar 3, 2018
1548 posts
1496 upvotes
GTA
It is all about what the funds were used for as to whether the interest is tax deductible. In this case even though the primary residence is used as the source of the funds the funds are used for the purpose of purchasing a rental property. As such interest is deductible.

Where people make a mistake is when they take out a loan on a rental property and use the proceeds to pay off their primary residence mortgage. The funds in this case were not used for investment purposes so interest would not be deductible.

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