All Topics / Help Needed! / Tax deductibility on interest

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  • Profile photo of kogepan517kogepan517
    Participant
    @kogepan517
    Join Date: 2009
    Post Count: 7
    June 25, 2013 - 12:46 pm

    Hi

    I would like to confirm my understanding on the issue of tax deductibility on interest expense.

    * I bought my PPOR for $620,000 and the loan facility amount is $496,000 (80% of purchase price).

    * I have $50,000 in my offset account at the moment. Hence outstanding loan balance is $446,000.

    * If I turn my PPOR into IP tomorrow and draw down my $50,000 in the offset account to purchase new PPOR, interest on loan facility amounting to $496,000 will be tax deductible? I think so.

    However

    * If I decide to refinance the loan before I turn PPOR into IP (assuming market value of property is $800,000, then 80% of loan would be $640,000) and turn PPOR into IP as soon as refinance is completed, will I be able to claim interest deduction on $640,000 loan or $496,000 loan? I think $496,000.

    Thanks

    Rick

    Profile photo of Richard TaylorRichard Taylor
    Participant
    @qlds007
    Join Date: 2003
    Post Count: 12,024
    June 25, 2013 - 1:29 pm

    Hi Rick

    No hate too say you will be limited to claiming the interest on the $496,000.

    Refinancing and borrowing additional funds will not be an acceptable purpose for claiming a Tax deduction on the increased interest.

    Cheers

    Yours in Finance

    Richard Taylor | Australia's leading private lender

    Profile photo of Jamie MooreJamie Moore
    Participant
    @jamie-m
    Join Date: 2010
    Post Count: 5,069
    June 25, 2013 - 11:13 pm

    Hi Rick

    Deductibility is determined by purpose.

    At present, only the $496k would be deductible.

    If you increased the loan to $640k – what would the additional $144k be used for? If it's used for a PPOR purchase – then it wouldn't be deductible. If it was used for IP purposes, it would be.

    Cheers

    Jamie

    Jamie Moore | Pass Go Home Loans Pty Ltd
    http://www.passgo.com.au
    Email Me | Phone Me

    Mortgage Broker assisting clients Australia wide Email: [email protected]

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