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Originally Posted by Calgary14
I'm 100% positive. As others have mentioned below the money does have to be used as an investment which would include a rental property. You would recognize the rental income and deduct the interest each year.
FYI - using a HELOC to buy a rental and then deduct the interest essentially makes the interest on your own mortgage tax deductible. Its called the Smith Manoeuvre, its very popular and common among real estate investors
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I am very familiar with the idea, but for some reason I thought that buying property wasn't eligible. The Smith Manoeuvre works because the investment is often stocks/mutual funds that pay dividends/interest. That isn't what you get directly from the investment property. Regardless, I'm not saying I'm right....which is why I asked!