Hi. I understand that if I take out a loan for an investment property but I have a loss on sale and the proceeds are not enough to pay out all of the loan the remaining loan is still tax deductable even though I’ve sold the property.
Does anyone have more info on this or any related tips?
Cheers
I mean the interest is tax deductable as the purpose was to generate income.
I don't think you could claim the interest as it is no longer producing an income however you would be able to carry the capital loss forward and use it to offset future capital gains.
Yes, this can be possible. There is a precedent case involving a person who borrowed to buy a business and the business went bust – company in liquidation I think. They were able to keep claiming the interest.
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
See these
FC of T v. Brown 99 ATC 4600; (1999) 43 ATR 1
FC of T v. Jones 2002 ATC 4135; (2002) 49 ATR 188
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
Learn something new everyday! Thanks Terry!
Thanks Terryw that's exactly what I was looking for. Cheers David
Have a few clients who were convinced to take out a line of credit and then invest by their Financial Adviser in Timber plantations, mango's or similar such wonderful loss making investments.
Course they have now lost everything and still able to claim the interest on the loan until it is repaid.
Thankfully we were not their FA at the time as steered well clear of such investments.
Cheers
Yours in Finance
Richard Taylor | Australia's leading private lender
Qlds007 wrote:Have a few clients who were convinced to take out a line of credit and then invest by their Financial Adviser in Timber plantations, mango's or similar such wonderful loss making investments.Course they have now lost everything and still able to claim the interest on the loan until it is repaid.
Probably took out an interest only loan & will crystalise the losses at the end of the loan term as well. Ouch!
Pardon my ignorance as I have never come across a sale that is lower than an outstanding loan before, but how is there still a loan to claim interest on after a sale of the security?
If there was still money outstanding, wouldn't it be a default and the LMI pay out the lender, and then the LMI would chase the vendor?
Cheers
Tom
Probably cross collateralised, or used a LOC for the deposit etc
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
Hi SNM
Yes you are so right.
Funnily enough the Fin Planner concerned used to crow to me that he could make upto 30% commission on the original investment and couldn't understand why i wasn't putting my cllent's into such products.
Tom, another reason why you don't want to cross collateralise your loans when buying property.
Cheers
Yours in Finance
Richard Taylor | Australia's leading private lender
Interest would be deductible. Check out the article I recently wrote dealing with this very situation
Generally you can continue to claim the interest on remaining loan funding the loss on an investment provided these points are met;
- All the proceeds of the sale of the investment is used to repay as much of the loan as possible (don't go on holiday with the proceeds)
- You are unable to repay the loan from other assets, other than the family home (the tax office isn't THAT cruel as to make you sell your home to repay investment loans)
- Don’t refinance the loan to extend its term or increase the interest rate. You must appear to be doing all that is possible to eliminate the loan. So refinancing to reduce the interest rate is ok
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