2. Is the interest on funds borrowed to pay a down-payment on a rental property considered to be tax-deductible? (I would draw from a HELOC on my principal residence)

3. Which spouse can claim the tax deduction for a jointly-borrowed HELOC? If this is based on who is on the title for the rental property, then what are our options if we’re both on the title?

It supports the use of Cash Damming if you want to see how it may work in your particular situation.

Cash Damming can be, obviously depending on how large your business expenses are, the fastest way to convert your non-deductible mortgage into deductible debt. This could easily save you thousands of dollars per year for many years.

you are Robbing Peter to pay Paul but you are paying down the principle on your own mortgage which eliminates your personal debt quicker. At first it’s not the easiest thing to understand but if you consider that the income doesn’t dissapear and your overall debtload is decreasing at the same pace as it previously was but you are transferring your bad debt to good debt.

I’ve been looking into this quite a bit the past couple of days. Here are 2 links with valuable info. One is just another explanation of how to do it, the other is a link to the CCRA’s website with their explanation and the rules on it.

http://howtobesetforlife.com/Reports/CashFlowDam.pdf

http://www.cra-arc.gc.ca/E/pub/tp/it533/it533-e.pdf

Hope this helps a bit

In fact, I wonder when do government get taxes from rental properties income? There are so many ways to avoid/defer taxes with rental properties :-)

There are a few banks offering HELOC with split accounts.

This is basically what happens:

1. Business has expenses
2. LOC pays business expenses
3. LOC has interest owed
4. Pay LOC interest with chequing account
5. Withdraw same amount from LOC back to chequing account

Make sense?

What do you mean by capitalizing the loan…..I get your diagram in relation to someone using borrowed money for Stock Investments….but how as you say does one capitalize the loan for a small business so that the small business pays the loan itself with you paying nothing…..I don’t get it…confused…..

Don’t quote me, but I think capital losses can be carried back 3 years and carried forward indefinitely?

I don’t think it matters how you use the money from the LOC – as long as it is used for investment in businesses of some sort. Stocks, rental properties, blogs, any other business – they are all eligible.

On an unrelated topic – if you have capital losses from stocks – is there a limit to how many years you can carry it forward?

is it possible to split an existing LOC in to two accounts? it’s a HLOC so it’s registered against the property.

also, does it matter if the LOC used is against the rental property? or is that just using your equity how you see fit?

The problem with mingling funds is that if you make any payments to the principal, it is not clear whether you are paying down the deductible debt or the non-deductible debt. This is not something you can “designate” or assume it is in proportion to the amounts of deductible and non-deductible debt.

IMO, any LOC used for business/investing should be kept separate.

I suppose it’s much easier if you have a seperate LOC for tracking. I wonder how hard the paperwork would be if you used a LOC that you also used for other purposes.