Borrowing money for down payment of

My question is: Canadian-specific
QUESTION: I bought a new house in  xxxxxxxx and moving this week.
The house I am currently living in is on the market but I am
getting impatient about it not being sold.
I would like to consider renting it for 1 year and then putting
it up for sale in spring 2007 when there is more activity.
I have taken a line of credit over my  old house towards the down
payment of my  xxxxxxxxxxx house.
Question: Is the interest on the  Line of credit deductable over
the rental income if my  old house  house is rented?
I u/stand that the tax dept doesn't consider this, but I
basically do not want to keep 2 homes - I cannot afford it!!! And
I cannot just keep paying the interest till my house is sold!!! I
do not understand the logic Revenue Canada is using??
I could take a line of credit and invest it in stocks and I could
deduct the cost of borrowing from my finacial gain , and/or show
loses on the same?? why can't I do the same for real estate...???
After all, this is a genuine situation and can happen to anybody.
Any sugestions?? Thanks
david ingram replies:
The money was not borrowed to buy the rental house.  It was
borrowed to buy your new residence, is personal and not
deductible in Canada.  There are two tax cases, Manfred Holman
and Eva Huber where the judge ruled that "that is the case".
Bulletin IT - 533 also states that is the case.
What you could do is borrow money to buy your wife out of her
half of the rental house.  Then the money would have been
borrowed for investment purposes and theoretically deductible.
However, you have another problem in that if you are only renting
to hold until a price change, rental losses are "not" deductible.
 In 1986, Ivan Glavanovic lost his claim for five years of rental
losses. He had built a house for sale in 1975 and was unable to
sell it. He therefore rented it out at a loss for six years. DNR
turned down his losses for 1979 and 1980. Judge Tremblay of the
Tax Court of Canada agreed with DNR. He ruled that the rental was
not to earn income but to hold on to the property. The losses
were therefore capital in nature and should be added to the
adjusted cost base of the house. It was also clear that there was
no reasonable expectation of profit from the rental.
 Also in 1986, Kelvin Lee found the same thing. He had rented his
house on an option to purchase. Judge Couture of the Tax Court of
Canada ruled that the renting while holding had no expectation of
profit and was not deductible.
If your intention was to keep the old house for future rental
profit, a rental loss would be deductible.
The foregoing only applies to Canada.  In the USA, in the same
circumstances, the interest on the down payment loan would be
deductible.  In fact today, I did a return for a Canadian living
in the USA.  He and his spouse kept their Canadian house and
bought another down south.  They actually borrowed part of the
down payment from the realtor who arranged the sale so we had a
realtor loan, a first mortgage and a second mortgage interest
deduction on Schedule A.
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