Is a mortgage on our rental house tax deductible?

August 10, 2011

From:  Abe
Date:  1 Sep 2010
Subject:  Interest Tracing rule

Hi Michael:

We bought a primary residence house A in 1999 for $335,000, with a mortgage of $268,000.

The $268,000 mortgage was paid off in 2005.

In 2009, we borrowed $400,000 as a mortgage against house A to buy our new primary residence, house B. We had two loans, $400,000 on house A and $410,000 on house B. The reason was the $400,000 was a conforming loan with a much better interest rate than a jumbo loan for $810,000.

When we moved to house B, house A was converted to a rental property.

Is the interest for the $400,000 loan on house A tax deductible?

Thank s in advance.

Regards,
Abe

Answer

Date:  8 Sep 2010

Hello Abe,

No.

If you refinance house B to wrap in the financing now secured by house A, the interest on the new loan will be tax deductible.

Good luck!
Mike Gray

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