Joan Allenby has owned her home for many years and, over this period of time, has completely paid off the mortgage. Given the low interest rates that are available on mortgages, she negotiates a $300,000, five year, variable rate mortgage, with an interest rate of 2.5 percent. She invests the entire $300,000 in publicly traded securities.

Would the interest on the mortgage be deductible? Explain your conclusion.

Janice Bronson borrows $250,000 and invests the entire amount in the shares of Nor-Tell Ltd. Three months later, after the discovery of significant accounting irregularities at Nor-Tell, the value of the shares has fallen to $30,000. She sells her shares and uses the proceeds to pay off $30,000 of the loan. This leaves a balance of $220,000.

Can Janice continue to deduct the interest payments on this $220,000 balance? Explain your conclusion.