Hi does anyone know if early break fees when refinancing on a home loan of an investment property tax deductible? can we claim all associated fees in a single year or do we have to apportion it over a x number of years?
thanks.
Pani think i may have found answer to my own question! spread over 5 years.
ABC-09 is correct.
Break cost refinance fees are considered a borrowing costs which can be claimed as a tax dedution over a 60 month period (5 yrs).
The other thing you have to watch out for is whether "all" of the refinanced funds is used for investment purposes or not. If you are extracting equity out of the IP and drawing down extra funding for it, you have to be sure that the purpose of that extra funding is used for an investment purpose, otherwise you have to pro-rata the BC fee into deductible portion vs non-deductible portion.
E.g IP loan balance outstanding is $200,000 and IP market value is $400,000. If you are refinancing to borrow 80% of the $400k Mkt value ($320k = 80% of $400k) and then use $200k of it to replace the exisiting IP loan with new loan and the remaining $120is used for private purpose (suc as renovation on PPOR), then not 100% of BC fee is deductible over the 5 yrs. In the e.g, the tax deductible portion of BC fee would be 200/320 = 62.5% of BC fee can be deducted over the next 5 yrs.
Whereas if the excess $120k was used to buy shares or deposit for another IP, then 100% of BC fee is deductible over 5 yrs.
Hope the above makes sense.
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