Real Estate

Help with rental refinance for tax purposes..

  • Last Updated:
  • Aug 9th, 2020 4:26 pm
[OP]
Newbie
Apr 15, 2012
9 posts

Help with rental refinance for tax purposes..

EDIT - found answer from CRA and income tax act.
Last edited by kefergus on Jul 28th, 2020 2:05 pm, edited 2 times in total.
5 replies
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Jan 2, 2012
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kefergus wrote: What I would like to do is simply refinance the rental house up to the 270k to pay off the LOC and then be able to write off the interest paid on that amount. What I'm worried about CRA may not like that. Since the HELOC was already owing when the house began to be rented out and has been owing for several years does this change things? Is this "current use" under the CRA as the sole purpose of the his HELOC is to make profit. Is there another route I can take?
Not possible. The property the loan is secured against is completely irrelevant to whether the interest is tax deductible. The only important factor is what the loan proceeds are used for.

In your case only the remaining original mortgage on what is now the rental property would be tax deductible, since the proceeds were used for the property that is now your rental. Any other HELOC or re-financed mortgage you get, would NOT be tax deductible since proceeds would be going to your principal residence or other things. The fact the rental property would be the collateral for those loans is irrelevant.


One possible option I came across is cash damming the heloc i.e. taking the rental income and paying down the HELOC and then paying the rental expenses with the HELOC. After a few years I've essentially paid off the personal portion of the HELOC and reinvested it back in the investment property, so although the amount owing is the same, the principal mortgage is down and everything is now full deductible. The challenging part would be figuring out exactly how much interest was paid on "personal" and "investment during this time.
Cash damming is your best option, although you have probably gone about it the wrong way. If cash damming you should be using a dedicated HELOC or sub-account in a HELOC, in order to properly track the exact amount being paid to rental property expenses/mortgage. You should also have a dedicated chequing account for the rental property. If you've been using the HELOC to pay rental expenses plus other random non-qualifying expenses, it may be a complex task to now go back and separate qualifying expenses, payments, interest, etc to get a proper deductible interest amount.
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May 5, 2008
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My rental mortgage is up for renewal and I presently have a loc account with 20k on it. If I add that 20k to rental property mortgage. Can I still write off the interest for everything?
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airmail wrote: My rental mortgage is up for renewal and I presently have a loc account with 20k on it. If I add that 20k to rental property mortgage. Can I still write off the interest for everything?
No, did you not just read my post above?? The 20K loan from LOC, HELOC, mortgage, etc is not tax deductible unless it was used to purchase qualifying investments. If you add it to rental property mortgage you'll have to separate the original vs re-financed portion of mortgage to calculate only the original mortgage interest that will be tax deductible.
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rob444 wrote: No, did you not just read my post above?? The 20K loan from LOC, HELOC, mortgage, etc is not tax deductible unless it was used to purchase qualifying investments. If you add it to rental property mortgage you'll have to separate the original vs re-financed portion of mortgage to calculate only the original mortgage interest that will be tax deductible.
Thx
How would CRA know that you added 20k to a rental?
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airmail wrote: Thx
How would CRA know that you added 20k to a rental?
If they decide to audit you for any reason.

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