Security for Investment Loan and Deductibility of Interest
Security for an investment loan does not determine Deductibility of Interest. What makes interest deductible ?
Some people get confused about the deductibility of interest – which is understandable.
The security for a loan does not change the deductibility of interest for that loan.
If I use my main residence as security and set up a $500,000 line of credit and then use those funds to buy an investment property – which will not be mortgaged – the interest WILL be deductible.
If I use an investment property to secure a new LOC and use those funds to pay down the loan on my main residence then the interest those funds will NOT be deductible.
Its the use of the money that is important – that is, where and how the funds are applied.
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