For US homeowners, mortgage interest is automatically tax deductible. But for Canadians, the write-off is not so straightforward. In order to make your mortgage interest tax deductible, homeowners must be able to prove that the money is being reinvested and is not being used for personal expenses.
A properly structured mortgage-centric tax strategy has several key elements – the most important of which is a multi-component, readvanceable mortgage or line of credit.
It’s best to have a single collateral charge with at least two components – usually a fixed-term mortgage and an open line of credit – that can track and report interest independently. This is absolutely essential under Canada Revenue Agency (CRA) rules and guidelines.
Second, the strategy must employ conservative leverage-investment techniques – which is why a financial advisor must be involved in order to comply with federal regulations. The financial advisor should be a Certified Financial Planner (CFP) who is experienced in leveraged investing, and able to actively monitor a homeowner’s portfolio on an ongoing basis.
Homeowners who opt for a tax-deductible mortgage interest plan make their monthly or bimonthly mortgage payments the same way they would when making any type of mortgage payment. The payments go towards reducing the principal amount of the mortgage and are then moved over to the line of credit as the mortgage is paid down. But in order to be tax-deductible, the funds must then be transferred to an investment bank account, which can be done automatically by your CFP....
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