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Do I need to pay taxes on interest I receive when I pay out the same amount and no gain?

I bought a house for my daughter on my home equity line. She is paying me the cost of the home and paying me the interest that I am paying on the loan. I am not gaining anything. I wrote up mortgage papers for her. We paid 'cash' for the house in essence. We are both on the title but she is 100% owner occupied. I did this because she had to have a place to live and her credit is bad. My question is how do I handle that on my taxes. She is paying the interest on her portion of the home equity loan for my other house which I am renting to my other daughter till I can move back there.

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So far as income tax is concerned, you can offset interest paid against rent/interest received within a definable business. The problem might come from Capital Gains Tax as you can only claim relief for a property which you live in. If you are not living in it during the last 3 years of ownership, but you used to, you can also claim the last 3 years. It doesn't matter that it might not be gaining in value now, because any past gains would be apportioned across the whole period of ownership. Mike