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QUESTION:
I run a home based business and as a result I deduct a % of the interest on
my mortgage (first mortgage). I now have a 2nd mortgage (secured LOC). Is
the equivalent % of interest I have paid on this 2nd mortgage also
deductable?
Thanks you.
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david ingram replies:
The LOC is not deductible as part of the purchase of the house because you have added it.
Therefore, it is either not deductible period because you borrowed the money for a trip to Hawaii or for something personal.
OR
It is all (100%) deductible because you borrowed it to finance your business activities.
It also may be 25 /75 or 50 /50 or 40 / 60 deductible if you borrowed 40% for business expenses and 60% for personal reasons.
Goto www.centa.com and read the Nov 2001 newsletter about making mortgage interest deductible.
You can make it all deductible (might take four or five years) if you are self-employed with business expenses.
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I actaully answered this twice - a little different each time - this is the other answer I gave:
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david ingram replies:
The Line of Credit (LOC) would be 100% deductible if you borrowed it for stock in your business or other business expenses.
If you borrowed it for a vacation to Hawaii, none of it would have been deductible.
At the same time, if you are in business and have expenses, you can use the techniques found at www.centa.com in the Nov 2001 newsletter to make ALL the interest deductible (essentially use business income to pay down the existing mortgage and borrow money for business expenses using a LOC ort mortgage on the property).
Good luck!
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David Ingram of the CEN-TA REALTY Group
US / Canada / Mexico tax and working Visa Specialists
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West Vancouver, BC, CANADA, V7T 1A2
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