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Using The Interest On A Second Mortgage As A Tax Write-Off

Posted by Greg Syrota on November 2, 2020
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Using The Interest On A Second Mortgage As A Tax Write-Off

We all know owning a rental property is a great way to invest and build your wealth portfolio. Unfortunately, a lot of homeowners sitting on plenty of equity are afraid to use that money for a down payment to purchase a rental or investment property. The idea of a second or third mortgage tends to scare people away. While there are always financial risks in any investment, there’s a little-known incentive that might just make you take the leap from homeowner to real estate mogul.

You can expense the interest on a mortgage as long as the intent is for the funds to be used on an investment property.

Thus, when you’re refinancing or taking equity, you can pull money from your existing owner-occupied home and use the funds on a rental property. The interest on the money you pulled out (and only that money, not any existing money) can be written off or expensed against your rental income.

You could expense your rental income down to a negative. This therefore lowers your overall taxable income, putting even more money back into your pocket.

It might only lead to a savings of a few hundred dollars a month but not many people know it’s an option and is an extra incentive to consider.

You will definitely want to talk to your accountant and your mortgage broker to gather more details.

There are also a few things to consider if you’re going down this route for an investment property.

You must claim your rental income on your tax return. It’s tax evasion if you don’t.

Mortgage rates are also typically cheaper for owner-occupied homes compared to rental or investment homes. Don’t be tempted to tell your broker or lender the house use will be owner occupied when it will actually be a rental because you want the lower rate. That is mortgage fraud. You could get charged and/or the lender could call the balance.

While taking on a second or third mortgage might seem a little daunting at first, there are some options available to save you money and your mortgage broker can help.

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