Interest on a loan to buy or build a rental property is tax deductible. While the property is rented, or available for rent, you can also claim interest charged on loans taken out to purchase assets, for repairs and for renovations. So far, so good.

If you rent out a property that was formerly your main residence, you can claim the interest on the loan balance outstanding, but you cannot claim interest on a loan that is refinanced, perhaps to buy the next main residence.

The purpose of the second loan is not for investment, therefore the loan is not tax deductible. Unfortunately, the loans can never be reversed, so it may be prudent to sell the former main residence that has the low debt, to release the cash from the equity to pay off the new main residence.

Make sure you check with your accountant to make sure you are doing it right.


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