My question is: Canadian-specific
QUESTION: If you borrow money to invest to earn income the interest you pay is deductible against your income for tax purposes.
What happens if you sell the investments? Can you still claim the interest as a deduction if you do not use the proceeds to pay out the $ you borrowed?
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david ingram replies:
You should read Interpretation Bulletin IT-533 for all the CRA's answers.
http://www.cra-arc.gc.ca/E/pub/tp/it533/it533-e.pdf
However, the rules are:
1. you have to track the money
2. You have to pay off the debt or track the new investment if you sell one to buy another.
3. If you sell for less than you owe, you can continue to deduct interest on the amount that you still owe IF and I say IF you paid off every cent you could from the proceeds of the sale of the investment.
This does NOT apply if you use 'any' of the proceeds to buy something else. �
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