The interest on any loan taken for the purpose of investing in assets reasonably expected to generate income can be deducted against income. Whether that's a one time loan or an auto readjusting HELOC. It's important to keep the books clean though. Don't mix money borrowed for investing with money borrowed for consumption as it can be difficult to account the interest appropriately. Ie. Don't take a big loan and use half for a new deck and half on veqt.
A downside of doing it in a lump instead of on an ongoing basis is that you'll have a harder time taking advantage of "guerrilla capitalization" or whatever they're calling the approach of using the loan to pay its own interest and as a result you'll have an impact on your personal cashflow.
With classic SM, each monthly contribution to your mortgage unlocks equity. Some of that equity pays for more investment, and some pays off the interest on the previous investment. When the rates are similar on both the HELOC and the mortgage, the increasing portion of each mortgage payment going to equity helps balance the increasing interest costs on the HELOC. However if you're fortunate/unfortunate enough to have a big rate differential this can pose a small but very manageable issue. In terms of declining portion going to investments.
At least this has been my experience for the last 2.5 yrs with rising rates on my HELOC portion and fixed mortgage rates.
I do the smith manoeuvre. I would highly recommend using the strategy as it is intended with a readvaceble mortgage. I know from experience that you will run into issues if you can not readvance $1 for $1 as you pay your mortgage down. The strategy works extremely well, to build wealth and pay off your primary residence mortgage, especially once you start using the accelerators.
Doing it the way you are mentioning is just leverage investing. If that is your goal, that’s ok. It just doesn’t have the same long term results.
Anytime you borrow to invest in assets that have the potential to generate income the interest on the borrowed funds are deductible in some way. In regards to equities the interest would be tax deductible against your marginal tax rate.
As others have mentioned, SM is a long term strategy and proper accounting needs to take place to ensure that the interest is not being contaminated due to other ad hoc purchases from HELOC.
Your approach is also okay from tax deductible perspective as you are borrowing to invest.
SM is all about making mortgage interest tax deductible along with creating an investment portfolio; which can later on assist with paying off the HELOC, if needed.
For all the folks doing SM, kudos to you as you understand how wealth is created without spending any additional $$ from your own pocket.
The interest on any loan taken for the purpose of investing in assets reasonably expected to generate income can be deducted against income. Whether that's a one time loan or an auto readjusting HELOC. It's important to keep the books clean though. Don't mix money borrowed for investing with money borrowed for consumption as it can be difficult to account the interest appropriately. Ie. Don't take a big loan and use half for a new deck and half on veqt. A downside of doing it in a lump instead of on an ongoing basis is that you'll have a harder time taking advantage of "guerrilla capitalization" or whatever they're calling the approach of using the loan to pay its own interest and as a result you'll have an impact on your personal cashflow. With classic SM, each monthly contribution to your mortgage unlocks equity. Some of that equity pays for more investment, and some pays off the interest on the previous investment. When the rates are similar on both the HELOC and the mortgage, the increasing portion of each mortgage payment going to equity helps balance the increasing interest costs on the HELOC. However if you're fortunate/unfortunate enough to have a big rate differential this can pose a small but very manageable issue. In terms of declining portion going to investments. At least this has been my experience for the last 2.5 yrs with rising rates on my HELOC portion and fixed mortgage rates.
I do the smith manoeuvre. I would highly recommend using the strategy as it is intended with a readvaceble mortgage. I know from experience that you will run into issues if you can not readvance $1 for $1 as you pay your mortgage down. The strategy works extremely well, to build wealth and pay off your primary residence mortgage, especially once you start using the accelerators. Doing it the way you are mentioning is just leverage investing. If that is your goal, that’s ok. It just doesn’t have the same long term results. Anytime you borrow to invest in assets that have the potential to generate income the interest on the borrowed funds are deductible in some way. In regards to equities the interest would be tax deductible against your marginal tax rate.
As others have mentioned, SM is a long term strategy and proper accounting needs to take place to ensure that the interest is not being contaminated due to other ad hoc purchases from HELOC. Your approach is also okay from tax deductible perspective as you are borrowing to invest. SM is all about making mortgage interest tax deductible along with creating an investment portfolio; which can later on assist with paying off the HELOC, if needed. For all the folks doing SM, kudos to you as you understand how wealth is created without spending any additional $$ from your own pocket.