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Is HELOC Interest Tax Deductible for Renovations?

29 July 2012

No one is envying the United States housing market right now. Sure they’re on the recovery but it’s slow-going, very slow-going, and Canadians for the moment are quite content that they live where they do. However, there’s still that one area of the U.S. mortgage market that many of us wish that we could capitalize on – claiming our interest on our tax returns. Unfortunately, we up here in the Great White North just can’t do that. That is, unless you’re using a home equity line of credit (HELOC.)

A HELOC is a second mortgage that acts as a revolving line of credit that can be withdrawn from and paid back whenever you like, until the end of the loan’s life. You can also use a HELOC for just about anything you need – for college tuition, just to have extra cash on hand, renovations, and as a down payment on an investment property. However, there is only one use that will allow you to claim the interest on your HELOC as a tax deduction. That is if you’re using it to pay for an investment property.

The Income Tax Act states that property investors can claim the HELOC interest they must pay for their income property on their tax returns. It’s not just the HELOC interest, either. Property investors can essentially claim all the expenses of the property; but they must also claim all of the income that it generates as well.

Sadly, claiming the interest from a HELOC on your tax deductions can only be done when you’re using the HELOC to buy another property, and that property is an income property. When homeowners use a HELOC for anything else, they must pay any and all interest that accrues, and it will not be available to be claimed on their tax deductions. Claiming HELOC interest on your tax returns also requires the help of a good accountant and a good Toronto mortgage broker. It’s not a simple matter of just filling in a line on your tax form. You must move the interest over to a completely separate bank account and then reinvest that interest – complicated stuff.

In the U.S. mortgage interest is tax deductible in order to promote home ownership and keep their economy churning. Here at home, we don’t need those measures and, we should be grateful that we don’t. Still, it’s always nice to get a break on your tax returns and if you’re an investor with income-generating property, you can!

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