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FAQ: How Can I Deduct Interest?

One of the pitfalls of investment (well, aside from the risk factor) is the income you received via interest, which of course is susceptible to taxation.

How one can make interest a tax deduction is a common question that comes up in our offices from time to time so we wanted to share a couple points with you today.

The first thing to know is that loans become part of the equation. This must lead to income from a business or property in order to qualify for deduction. Second, the interest can only be from that taxable year and legally you must pay back said loan. Such borrowed funds also need to result in grains income (excluding capital gains).

As a result, the loan interest must be in one of two forms:

1. Borrow-to-earn – a loan that is used to purchase assets that result in income (such as from your business).

or

2. Rearranging existing debts – for example, pay off an existing mortgage and convert to a non-deductable borrow with the intent of investing proceeds.

There are, of course, other factors that come into play, so we do advise setting up a meeting with one of our advisors to talk about your deductable income (either interest or other).