I recently purchased a new home and I plan to rent out my existing home. My plan was to use the equity from the current home for the down payment on the new home and then refinance such that I have a mortgage at 80% LTV on the first home. I was under the impression that the interest on the mortgage on the rental property would be tax deductible because with a change of use there is a deemed sale of the property. However in the booklet 'T-4036 Rental Income' it states:
So is the 'Deemed sale' not sufficient for interest deductibility or do I have actually sell an repurchase the house similar to IT-533 para. 15You were asking . . .
Q. I own and rent a semi-detached house. This year,
I refinanced the property to increase the mortgage
because I needed money for a down payment on my
personal residence. Can I deduct the additional interest
on the mortgage against my rental income?
A. No. You are making personal use of the funds you got
from refinancing your rental property. As a result, you
cannot deduct the additional interest when you calculate
your net income or loss from your rental property.
Thanks for your helpA taxpayer may restructure borrowings and the ownership of assets to meet the direct use test.