When can I deduct my personal mortgage interest on my personal taxes?
Under certain conditions, the interest you pay on your personal mortgage may be deductible on your personal taxes. However, only the interest on your mortgage would be deductible, not the principal repayments.
In all instances, you have to look at what the purpose of the loan is for. If it is for generating business or investment income, then the interest on the loan is deductible. However, if it is for personal purposes, then the interest is not deductible.
There are several instances where you can deduct the interest paid on your personal mortgage. We will discuss some of the more common situations.
- Investment. If you borrow money secured by your house to invest into a company, the interest paid on the loan is tax deductible. The deductibility of interest could be lost if you sold your house, re-paid the entire mortgage and then later took another mortgage out. This is because there would not be a direct link between the investment and the new mortgage. In order to keep the deduction, you would need to ensure that the old mortgage is paid out directly by the new mortgage.
- Rental property. If you have a rental property, the interest on the loan used to purchase that property can be deducted against that property’s rental income. If you only rent out a portion of your property, then you may only deduct a portion of the interest. This is usually calculated based on a percentage of the square footage rented out compared to the total square footage of the property.
- Home office. If you are self-employed and use a portion of your house mainly for work, you can claim your personal mortgage as part of your home office expenses. Again, the interest would be pro-rated based on the square footage of the home office compared to the total square footage of the property. Please note that if you are an employee of a company and required to have a home office for work, you cannot deduct the mortgage interest as part of your home office expenses.
If you have questions concerning the deductibility of your mortgage interest, please contact us for help on this issue. for our help on this issue.Download a copy of this issue