Hi guys, question – want to use H/E Loan to finance renovations on a property we’ve just brought, to bring it up to scratch to rent and wondering if we could tax deduct the interest. I know we can’t tax deduct the reno’s…. but as we are using money from the H/E Loan (which is only used for investment purposes) thought we may be able to deduct the interest. Hope this makes senses…any answers appreciated…..sq[xx(]
G’day Suzie…
You certainly can claim the interest on any money sopent on renovating. It always gets back to the
“pupose of the expenditure”..I am a little confused as to your comment as to why you feel that you can’t claim on the reno itself. Are you saying you paid cash for it. If not, as you are renting it out any interest on the borrowings is certainly a tax deduction.
If you did pay cash…borrow against it to take on another property or 3-4-5 etc.
Please let me know if I have misunderstood that part of the info you provided
Billfromoz
don’t forget you can claim depreciation allowance on renovations.
Terryw
Discover Home Loans
North Sydney
[email protected]Terryw | Structuring Lawyers Pty Ltd / Loan Structuring Pty Ltd
http://www.Structuring.com.au
Email MeLawyer, Mortgage Broker and Tax Advisor (Sydney based but advising Aust wide) http://www.Structuring.com.au
Thanks for the feedback guys. Billfromoz – no I didn’t pay cash. I have brought the property 80% finance and have a H/E Loan against my current PPOR which I will be using to finance the reno’s on the IP (I use this loan for all investments). I understand the reno’s are depreciable though, but really wasn’t sure if interest was a yearly tax deduction…..sq
Suzie…
Thanks for the feedback guys. Billfromoz – no I didn’t pay cash. I have brought the property 80%
The entire interest on your loan (80% finance)
is tax deductible…without a doubt. Plus the interest incurred on the reno job.If in doubt with answers received…see your accountant…as long as he doesn’t wear a brown cardigan. If he does…change accountants
Billfromoz
Billfromoz,
I think what suzieq may have ben talking about is the difference between what may be repairs and what is a capital improvement. Replacing like with like is generally a reapir and tax deductible however if you are replacing something with something different ie timber fence with brick fence then this is a capital improvement – can’t be claimed as atax deduction but can be claimed by way of depreciation.
bribie
Good point on claiming repairs versus improvements. But if you borrow to make either, the interest is deductible.
Cheers
Mel
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