How to deduct mortgage interest

Act like an American and deduct your mortgage interest

You can’t really deduct mortgage interest in Canada but you can mimic its effect.

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house_worth_322If you’re jealous of your American cousins who get a tax deduction for their mortgage interest, use this trick to mimic the effect. For this example, Scott Plaskett, a financial planner at Toronto’s Ironshield, assumes you have a $100,000 mortgage as well as $100,000 in non-registered investments.

  • Cash out your non-registered investments and use them to pay off your mortgage.
  • Get a line of credit secured against your house for $100,000, then buy back the investments. Ask a tax pro about limits on repurchase timelines.
  • Loans on investments are tax-deductible, so you can write off your interest each year. If you’re paying 3.5% on the loan, you can deduct up to $3,500 of interest annually, saving about $1,154 if you’re in the 30% tax bracket. Each year the loan is held, you can claim a deduction. Make sure your investment return exceeds the cost of your loan. We recommend you consult a professional for help with this type of strategy.

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