My question is: Canadian-specific QUESTION: I bought a new house in xxxxxxxx and moving this week. The house I am currently living in is on the market but I am getting impatient about it not being sold. I would like to consider renting it for 1 year and then putting it up for sale in spring 2007 when there is more activity. I have taken a line of credit over my old house towards the down payment of my xxxxxxxxxxx house. Question: Is the interest on the Line of credit deductable over the rental income if my old house house is rented? I u/stand that the tax dept doesn't consider this, but I basically do not want to keep 2 homes - I cannot afford it!!! And I cannot just keep paying the interest till my house is sold!!! I do not understand the logic Revenue Canada is using?? I could take a line of credit and invest it in stocks and I could deduct the cost of borrowing from my finacial gain , and/or show loses on the same?? why can't I do the same for real estate...??? After all, this is a genuine situation and can happen to anybody. Any sugestions?? Thanks ----------------------------------------------------------------- ---------- david ingram replies: The money was not borrowed to buy the rental house. It was borrowed to buy your new residence, is personal and not deductible in Canada. There are two tax cases, Manfred Holman and Eva Huber where the judge ruled that "that is the case". Bulletin IT - 533 also states that is the case. What you could do is borrow money to buy your wife out of her half of the rental house. Then the money would have been borrowed for investment purposes and theoretically deductible. However, you have another problem in that if you are only renting to hold until a price change, rental losses are "not" deductible. In 1986, Ivan Glavanovic lost his claim for five years of rental losses. He had built a house for sale in 1975 and was unable to sell it. He therefore rented it out at a loss for six years. DNR turned down his losses for 1979 and 1980. Judge Tremblay of the Tax Court of Canada agreed with DNR. He ruled that the rental was not to earn income but to hold on to the property. The losses were therefore capital in nature and should be added to the adjusted cost base of the house. It was also clear that there was no reasonable expectation of profit from the rental. Also in 1986, Kelvin Lee found the same thing. He had rented his house on an option to purchase. Judge Couture of the Tax Court of Canada ruled that the renting while holding had no expectation of profit and was not deductible. If your intention was to keep the old house for future rental profit, a rental loss would be deductible. The foregoing only applies to Canada. In the USA, in the same circumstances, the interest on the down payment loan would be deductible. In fact today, I did a return for a Canadian living in the USA. He and his spouse kept their Canadian house and bought another down south. They actually borrowed part of the down payment from the realtor who arranged the sale so we had a realtor loan, a first mortgage and a second mortgage interest deduction on Schedule A. ------------------------------------------------- David Ingram's US / Canada Services US / Canada / Mexico tax, Immigration and working Visa Specialists US / Canada Real Estate Specialists My Home office is at: 4466 Prospect Road North Vancouver, BC, CANADA, V7N 3L7 Cell (604) 657-8451 - (604) 980-0321 Fax (604) 980-0325 Calls welcomed from 10 AM to 10 PM 7 days a week Vancouver (LA) time - (please do not fax or phone outside of those hours as this is a home office) email to taxman at centa.com www.centa.com www.david-ingram.com Disclaimer: This question has been answered without detailed information or consultation and is to be regarded only as general comment. Nothing in this message is or should be construed as advice in any particular circumstances. 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