Owns a house in one city and wants to mortgage it to

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QUESTION:
 I currently own a $130K home in one city, and moved to another city one year ago. I am now looking to buy a new house but do not want to sell my old house. I currently rent an apartment in the house.
The house is almost paid off. I am told by CCRA that I cannot re-mortgage my house and use the cash to buy a new home and then deduct the mortgage interest against rental income from my present house. Is there any way to structure the financing and/or sale of the old house and new house for tax planning purposes?
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david ingram replies:
This is an old problem and is virtually unsolveable with out selling the old house to a third party and then buying it back.  A whole series of taxcases say that Revenue Canada or the CCRA is correct in this case.
Goto www.centa.com and click on newsletters and then click on 2001 and then click on November to get a dozen pages on making your mortgagwe interest
deductible.
YOU WILL DISCOVER THATYOU CAN USE THE RENT FROM THE OLD HOUSE TO PAY DOWN THE NON-DEDUCTIBLE MORGAGE AND CREATE A DEDUCTIBLE MORTGAGE BUT IT WILL TAKE SEVERAL YEARS TO MAKE THE WHOLE MORTGAGE DEDUCTIBLE
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