Deductible Borrowing

by Mr. Cheap

Now that I’m living off of savings, I expect at some point I’m going to have to dip into my line of credit. Since its always better for debt to be deductible (save you money on your taxes), rather than non-deductible, my plan is to start borrowing money to pay for my condo expenses.

How this will work is, I pay $126 every week for the mortgage payment (principal and interest) and $500 a month for condo fees. On the day the expense are paid, I’ll transfer an equivalent amount from my line of credit into my checking account (where these expense are drawn from).

This will put about $1000 / month (plus interest) on my LOC, while I should be able to live off of the $1300 / month that my condo is bringing in in income. I have a few thousand in savings which I’ll use for any unexpected expenses. Once I start my PhD (or bring in some coin from contract work), I’ll start paying down the LOC.

The benefit of doing this will be that I’ll get a tax deduction on the 9% interest I’ll be paying on this every month (since I’m using it to pay for investment related expenses). If I waited until I ran out of savings then started borrowing from the LOC for personal spending, it wouldn’t be deductible.

I’ve ran this past a couple of friends and I’m pretty sure that its valid. If anyone knows if this isn’t allowed (or can warn me of any potential pitfalls), I’d be very interested.

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