Taking out a mortgage on a Canadian investment property - when is the interest deductible in the US?

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rj2
Posts: 3
Joined: Sun Apr 28, 2019 6:46 am

Taking out a mortgage on a Canadian investment property - when is the interest deductible in the US?

Post by rj2 »

Here's my situation:

-- I am a US resident for tax purposes (live in US, greencard) and a Canadian citizen
-- I have an investment property in Canada that is rented out, and there is currently no mortgage on this property
-- I have a primary home in the US, and a mortgage on it that is >$750k, so the interest >$750k is currently not deductible

My initial thought was to take out a mortgage on the Canadian property, transfer the proceeds to the United States, and pay down my US mortgage. I was hoping that by doing that I would be able to deduct the interest on the Canadian mortgage, but it seems that I cannot do that -- my reading is there's an IRS rule that would say I used the proceeds for "personal use" and therefore not deductible.

It STILL might be worth doing, because I would be able to use the CDN rental income to pay the CDN mortgage, and free up cash flow in the US, without having to do any additional currency transfers. But it's not as tax efficient as I would like it to be, if I'm right about that.

What are similar things that I could do that would result in the interest on the Canadian mortgage being deductible from US income?

One thought would be to do something like this:

#1 - Sell US investments worth $X and use the proceeds to make a big lump sum payment against my US mortgage
#2 - Take out the mortgage in Canada for (exchange-rate * $X) and use the proceed to buy investments

I think now the interest is at least deductible against investment income? Because the proceeds were used to buy an investment?

Is there any other things I could do? And any gotchas about doing this?
Linkinvoid
Posts: 1
Joined: Thu Nov 02, 2023 7:26 pm

Re: Taking out a mortgage on a Canadian investment property - when is the interest deductible in the US?

Post by Linkinvoid »

The idea of selling US investments to make a lump sum payment on your US mortgage and then using a Canadian mortgage for investments is an interesting one. It might indeed make the interest deductible against investment income.
However, tax laws can be tricky and can change, so it's crucial to consult with a tax professional who specializes in cross-border issues. They can provide tailored advice based on the latest regulations and your specific situation.
If you ever need more insights or guidance on financial matters, you should explore Equity Release Harrogate https://harrogatemoneyman.com/equity-re ... harrogate/ . They offer practical tips and resources without all the usual fuss.
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